Banks, like insurance companies (and nurses), are in this to make money. They are not in this to "help people". Sorry if I sound cynical, but thats how it is in a capitalist country.
You don't qualify for a HELOC in the same way you qualify for a mortgage: one time process, then set for term. HELOC is an ongoing qualification.. people whining that it got reduced out of the blue appear not to understand that.
I could see one reason for Ms. Newport Beach to be rightfully upset.
Had she been offered $10k, she probably would not have spent the time and the closing costs to obtain it.If the bank reduces the HELOC substantially, they probably should retroactively reduce the closing costs.
Had she been offered $10k, she probably would not have spent the time and the closing costs to obtain it.If the bank reduces the HELOC substantially, they probably should retroactively reduce the closing costs.
First, I doubt she paid much to get that HELOC.
Second, you're falling into the same trap she did: the line limit on a HELOC is based on how much equity you have. The contract does not guarantee that you will always have equity.
She thinks Citibank was charging her closing costs (of whatever amount) for a guaranteed dollar amount, but it wasn't. It never is.
Citibank doesn't have to refund closing costs to her because the denominator of a fraction changed. That denominator (the value of the home) was always at risk.
Just good negotiating on Citi's part here. If the house goes into foreclosure, the first lienholder will lose tens of thousands. With only 1,000 of their loan at stake, Citi should play hardball for 10 or 20 thousand.
I don't like the idea of a bailout plan that allows the first lienholder and the borrower to renegotiate and wipe out the second without consequence. It create incentives for collusion where the seconds are wiped out by an excessively low refi and some backdoor or under-the-table kickback is provided to the first.
So just how is the HELOC lender better off by having the home go into foreclosure rather than accepting a short sale? The 2nd mortgage lenderr will lose everything in either case.
It seems as if the decision of lenders to prevent short sales doesn't end up helping anyone. It's not as if borrowers will continue living in a home that is under water making payments (that would be an insane financial decision).
I suppose that HELOC lender recalcitrance might convince 1st mortgage lenders to be a little more generous in splitting some of the money they stand to get with the HELOC lender, just to make them a little more compliant. But that seems like quite a long shot.
So many of these HELOC's were offered with minimal or no closing costs! She's probably lucky to have the $10,000 line. Wonder if she could even get a new HELOC if she wanted now!
I read this excerpt before I saw it here and I was really struck by the logic. I might rationally point out that no one out there HAS to loan Ms Newport Beach anything on the equity she may or may not have. That is a financial innovation at the discretion of a bank. If the equity exists, and she has an unfortunate turn of events, she can always solve the problem the good old-fashioned way: she can sell the asset and take the cash. She is not willing to do that and thinks the world should help her stay in her ostensibly 1.1M home. It boggles the mind, the entitlement here.
You see, she forgets the one thing about asset prices she should know if she's as astute as she makes herself out to be: it isn't worth anything until you sell it. That seems to be THE fundamental problem in the markets now, as a matter of fact. She might as well have a CDO. She's marking the house to HER model. Perhaps Citi's model is different.
It seems as if the decision of lenders to prevent short sales doesn't end up helping anyone.
So what you're suggesting, Sniglet, is that Junior liens should just OK short sales in all circumstances? Sorry, it's not that simple. I think if ol' Randy "retired", he must have other assets he could tap to pay off his obligation.
In the old days, one really had to prove that one was flat broke to get an OK on a short sale.
I suppose that HELOC lender recalcitrance might convince 1st mortgage lenders to be a little more generous in splitting some of the money they stand to get with the HELOC lender, just to make them a little more compliant. But that seems like quite a long shot.
It might be a long shot, but what does the HELOC lender lose by trying?
If your choice is getting wiped out today, or possibly getting wiped out in the future, what's the problem with taking a gamble?
The $64 dollar question is, what sort of expense qualifies as a 'good' use of a HELOC? Not, e.g., 'catastrophic' medical bills, not home improvement (doesn't increase the value of your property, not any more, anyhow), not consumption (as some are now discovering).
In principle, I guess, some sort of investment would be 'good' debt rather than 'bad' debt-- but I also guess that the lender would like to know about that investment.
It truly boggles the mind but seeing what my girls kids learn in scool (here in spain) i dont wonder anymore...
i try hard to teach them common sense but i feel like a lonely soldier..
invest in educatíon in the next years i say a sure growing need will arise...
Reduced to $10,000!? Hello!? Please dont f-ck with my house in Newport Beach
Of course, Im calling them today to dispute it.
Ms. Newport Beach (who apparently drives trucks part-time) doesn't seem to understand the concept that the money used to drive house prices up in her area was coming from the banks, not the homebuyers.
If the banks don't think her house is worth a certain amount then that pretty much seals the deal, unless we've got a bunch of homebuyers running around willing (and able) to stroke checks for hundreds of thousands of dollars.
I'm struggling to remember a single word of any media story during the boom educating borrowers on the "smart" uses of a HELOC. Nothing comes to mind, sorry.
Given that most press reports result from press releases by some business or other, wonder why that could be?
If your choice is getting wiped out today, or possibly getting wiped out in the future, what's the problem with taking a gamble?
And unfortunately this is an iterative process. The first ones to say no catch the early short-salers in the cross-fire. But I'm certain that they will hold the sale hostage unless they get cut in on some of the money to do the deal. Hell, I would do it if I were getting nothing as a tactic to say to the first lienholder "Anytime this exists in the future, you can kiss the short sale goodbye if I hold the subordinate, and take the bigger loss." Makes perfect sense to me. Probably not to the people that are trying to dump the property though.
2nd lien holders are sunk. I'm surprised they didn't see that coming.
I'm also surprised a nearby bank is still offering HELOCs, no closing costs, to 90% equity. That's playing with fire.
About using HELOCs as emergency funds, the eternal optimism of Americans, which I see as a strength usually, is thinking along the lines of an upcoming windfall coming from who knows where, but surely somewhere.
Thus, the next bubble: gambling. Coming to every city near you.
Smart use of HELOC? You know someone in the remodeling biz who is about to give you a new wing on your house at well below half of what it would cost to hire someone at market prices. Not much else comes to mind.
I'm struggling to remember a single word of any media story during the boom educating borrowers on the "smart" uses of a HELOC. Nothing comes to mind, sorry
My HELOC is fixed forever at .25 above prime. I kid you not. The rate on mine now is south of 5%. Are you kidding me? Why would I ever carry a credit card balance for anything? I retired an old grad loan that was 7.25% to it. AND it is tax deductible to boot, which my old grad school loan wasn't because I make too much money. The trick is, of course, to be able to pay it off if the rate climbs.
Here is a great by-product of the credit boom years. I have one last Federal loan through Sallie. I got a chance to lock it in a couple of years ago at...drum roll please...2% fixed. Yes, that actually qualifies as an investment doesn't it?
Didn't we have an article a couple of weeks ago about someone doing a straight re-fi of their first mortgage, and the second not allowing it to go through?
"woulndt this equal a bank run?? cash out all credit lines?? just asking...."
Call it what you want. I call it buy low, sell high. I call it making sure I have control of my future instead of leaving that up to people who have ruined the economy.
It doesn't matter at this point. They took all the money and spent it. And now can't pay it back.
If the equity exists, and she has an unfortunate turn of events, she can always solve the problem the good old-fashioned way: she can sell the asset and take the cash. She is not willing to do that and thinks the world should help her stay in her ostensibly 1.1M home.
Isn't this exactly the same as Bear Stearns et al claiming their various assets are presently undervalued due to temporary irrational conditions ("run on the bank")?
Isn't this exactly the same as Bear Stearns et al claiming their various assets are presently undervalued due to temporary irrational conditions ("run on the bank")?
Timing in life is everything. If you have to sell under depressed market conditions, then, as they say in French...you are f&*#ed.
Okay, so I'm clear here; when you ReFi and pay off your first, any currently existing second's or outstanding HELOCs are now senior to the new "80%" loan unless they agree to be made junior to these new loans? Why would they voluntarily agree to that?
Didn't we have an article a couple of weeks ago about someone doing a straight re-fi of their first mortgage, and the second not allowing it to go through?
That was a case where the existing second lien holder refused to "subordinate" while the guy refinanced the first lien.
You could, of course, view that as the behavior of a lender who sees situations like Ms. Newport Beach coming and doesn't want to be there when it happens: Nat City (the lender in question) wanted to be paid off while the borrower still qualified for a loan. On the theory that waiting until the borrower needs the "disability insurance" isn't wise.
(Actually, that case was a closed-end loan, not a HELOC.)
Isn't this exactly the same as Bear Stearns et al claiming their various assets are presently undervalued due to temporary irrational conditions ("run on the bank")?
Billy Hill | 03.27.08 - 9:56 am |
My Ponzi scheme was running fine, until everybody got all irrational and sh!t...
--
I am glad for you, Tanta, that the financial Nazis of America -- Debt Pushers -- have so enriched your life by your knowledge of their evildoings by having worked for them. I don't blame people like you directly but I wonder if you had any sense of the gross wrongdoing of these well-entrenched evildoers. Or, were you so blinded by legalism that the idea of what is right and wrong wasn't part of your thinking.
There is proper lending and right ways of making money, or making a living, and then there are evil ways of making money. Financial Nazis, with their power and control of the Fed and the USG, got lot of Americans involved in their evil and corrupt practices. What we are seeing now is fall out that was wholly predictable. The questions is: Who all are their victims? And how were the targeted?
when you ReFi and pay off your first, any currently existing second's or outstanding HELOCs are now senior to the new "80%" loan unless they agree to be made junior to these new loans?
That is correct. The technical term is "subordination." It's a written agreement filed in the land records to fix the problem of the new "first lien" being recorded after the old second lien was recorded.
Why would they voluntarily agree to that?
Well, in a booming RE market they'd agree to it because there's no particular reason not to.
This fact was generalized by a lot of people into the assumptiont that they'd do it in a falling market where they were being lined up to take all the losses.
They are most certainly not volunteering to do this these days.
"A spokeswoman for National City, Kristen Baird Adams, said the policy [of blocking homeowners from refinancing first mortgages unless the borrowers pay off the second lien held by the bank first] applied only to home equity loans originated by mortgage brokers."
This seems an odd distinction to make, unless they're implicitly admitting a qualitative difference between the two types. And even so, if you're not working out each loan on its individual characteristics, you're not doing what's best for NCC, are you? Maybe I'm misunderstanding.
I have a better idea than using your HELOC as disability insurance: It's called "disability insurance". You see, you sort of pay the "interest" on this HELOC now, and if you become disabled, you get the principal for free!
Maybe people now nee 20/60/20 financing: 20%-the first formerly known as second/60%-conventional financing second still under the 805 limit/20%-oh wait, you can't FIND lenders that supid anymore.
This seems an odd distinction to make, unless they're implicitly admitting a qualitative difference between the two types.
I suspect there are two things going on here. One, NCC, like everyone else, is seeing much better performance in their retail/direct book than in the brokered book.
But also, those non-brokered loans probably went to customers of the bank. So NCC has your checking account and your IRA and stuff, not just your HELOC. If you are going to take a risk on anyone, you take a risk on your bank customers, not on some other bank's customers.
Watching the battle between the lenders and the borrowers is like watching two snakes trying to swallow each other. I feel sympathy for neither, and I am glad that when it's over, there will be at least one less snake in the world. Hopefully, they'll choke each other. If either survives, we should beat it with a stick.
Last week you saw CIT grab 7+ billion in unsecured bank lines before they could be lowered (that was my read). I think this article will spawn a high number of similar grabs from HELOC holders who view this as their catastrophy fund. If I had one that is what I'd be doing. How much does it hurt to cash it in and stick it in a money market at another bank. 3-6% ???
Ideally, it would be some benefits to reviewing each case-by-case, but that takes time and resources. Perhaps operationally, drawing this line in the sand was the more pragmatic approach for them.
So basically a 1st mortgage w/ a HELOC or 2nd lien where you tap it for "emergencies" or "luxuries" etc has the same end state as a NegAmOptARM, but possibly w/o the ARM function, where you end up underwater. The bonus being a 2nd lien holder who cannot book the draw on the HELOC as revenue and they can preclude the HD from a short sale/refi?
Ms. Newport Beach seems to think that a heloc is an entitlement.
"Of course, Im calling them today to dispute it."
We're talking about the bank here, not a governmental agency!
One of the advantages of living a life of economic solvency is you don't have to spend too much time in petty disputes with bank clerks. If Ms. Newport Beach really has all that equity, I'm sure many other banks are eager to set her up with a hefty line. But on the other hand, if the equity is not there, nobody is going to do business with you, no disputing that.
Mr Duncan: I have a better idea than using your HELOC as disability insurance: It's called "disability insurance". You see, you sort of pay the "interest" on this HELOC now, and if you become disabled, you get the principal for free!
Good idea! Say, I wonder if anybody offers such a thing?
And can we get this noisy duck out of the way, we're trying to have a discussion here.
To have access to cash, Porsche maxed out their lines of credit before their banks could close them. Homeowners can do the same, stick the total in a FDIC bank account and figure the interest difference is the cost of insurance. If it's good enough for Porsche, it's good enough for me.
The articles seem to suggest that some people have grasped HELOCs instead of disability insurance. Wonder why that is? Is disability insurance so expensive? I don't think so (but what do I know?). Rather people probably are not being honest about the fact that they want to spend the HELOC on their own terms, not that of a doctor.
In the closing part of my practice in the last week, I did fifteen cash-out refi's. About five were fixed 2nds. This amount is about double last month's total for the same week (last) of the month.
One of the fixed 2nds carried an interest rate of 6.375 (!) and on a thirty-year loan, which itself is unusual.
Where in the hell is 6.375 money coming from on a fixed 2nd, 10-20% ltv w/ a three year prepay?
My guess is 1) FHLB short-term paper to fund, and then 2) GSE long term paper to hold. But how could a GSE charge that and expect to stay in business?
Boggles the mind, but methinks does not bode well for finding a bottom, except in the value of the greenback.
The sense of entitlement shouldn't be a surprise.Homes WERE a liquid investment for years,and tens of millions,perhaps hundreds of millions of dollars were spent convincing people real estate only went up and easy riches were theirs.TV shows,radio ads,full page ads every day in the paper.People were sold on the idea that equity was money "After all it is YOUR MONEY" was the punch line of one ad I heard.And lenders made loans that were insane,an 80/20 loan is at least as risky as going to vegas and putting it all on black.
I have a better idea than using your HELOC as disability insurance: It's called "disability insurance".
I agree, in principle. There are some catches, however. One of them, the one that's biting me in the ass, is that most disability insurance policies will only pay for two years for mental or nervous health conditions. At that point, it doesn't matter that I couldn't conceivably go back to my old job; they stop paying me.
Back When Dinosaurs Ruled The Earth, you were told to use a HELOC for real emergencies--something that had to be fixed right now.
Like, a car crashes through your living room. Your roof fails spectacularly. Something you could find another way to pay for, or insurance might cover, but you have to come up with cash right. this. second. or the damage would get much worse.
las: disability insurance is pretty goddam expensive, and isn't a benefit at my job (it's not uncommon though). but I'm going to have to bite that bullet soon and do it.
buddy that does helocs for a well known national bank in sacramento, hears of another branch where a guy buys a $120k boat: $50k non-refundable deposit, $70k check from the HELOC....i think you know the rest.
Anecdote: took my son to the local bank yesterday to open a student checking account. The banker was 20 minutes late for the appointment. He apologized, but said that they had lowered a lot of HELOCs and he was inundated with refis. "People are really having a hard time with this", he said.
There appears to be some confusion about the difference between money you borrow and money you have.
jim a writes:
Okay, so I'm clear here; when you ReFi and pay off your first, any currently existing second's or outstanding HELOCs are now senior to the new "80%" loan unless they agree to be made junior to these new loans? Why would they voluntarily agree to that?
jim a | 03.27.08 - 10:00 am |
Well if your're refi'ing out of a 1st you have no ability to pay (say the 12% loan that the genius from the BSC protest was griping about) into a fixed rate loan you can repay, it makes all the sense in the world to the holder of the 2nd, as the 2nd might actually get payed instead of being wiped out in a foreclosure. The 2nd holder is no worse off than they ere to begin with is the new first is on better terms for the same principal.
While I understand that a second lienholder might be able to extract something out of a short sale in exchange for their release of the junior lien, even if the junior lien is "out of the money," it strikes me that this would result in an awful lot of negotiation (i.e., expenditure of paid human time) between lenders who might be in exactly the reverse positions on other loans. Playinng "hardball" as a junior lienholder on one house might bite the lender in the um, place it hurts to be bit, in another situation where the lender is in first position. Or maybe that situation only arises in the commercial context and doesn't really apply with residential lending. And I suppose the lenders are so swamped and the accounts so distributed they may not even know that they're sticking each other up on different deals at the same time. In any event, it strikes me that the whole negotiation doesn't create any more value or money for the lenders in the aggregate; it's ultimately a zero sum game.
As to the "run on the HELOCS," that seems like a real possibility to me. Which would cause the lenders to pull HELOC commitments more rapidly. And cause more consumers to panic. And maybe even cause them to save money for a rainy day. And spend a lot less. Thus generating an enormous economic rainy day. Yikes!
Don't get me started on the hypocrisy of the "entitlement" argument here.
I have a house that I can afford on my income.
However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.
In other words, they feel entitled to own something they can't afford to buy.
I'd like to drive my Bristol Blenheim, have a nice house on Bainbridge Island with a view of the Sound, and go back to school to study ancient history just for the joy of learning. Ain't gonna happen, of course, but I sure as Hell don't feel entitled to all that, or "robbed" by anybody because I can't afford those things.
When I took out my HELOC, the bank said it was all about "freedom." Freedom to pay my bills, my way. Freedom to consolidate all my other expenses into one easy, tax-deductible payment.
Clearly, the banks now hate freedom and should be considered terrorists.
Sniglet So just how is the HELOC lender better off by having the home go into foreclosure rather than accepting a short sale? The 2nd mortgage lenderr will lose everything in either case.
Yes, which is why the second has no incentive to agree to a short sale unless the first is willing to toss some $$ the second's way. By agreeing to such a short sale they take all the hit and the other parties get all the benefit.
Think about this for a moment. The first lienholder has no incentive to worry about the second lienholder's interests when assessing a short sale. All the first cares about is getting itself covered, and it will agree to any short sale that will do that.
People who are looking to buy short sales have no incentive to offer more than the lender will accept. This is a process of negotiation, and it is nearly insane to reprove the second lienholder for wanting to be a party to the negotiation.
Most seconds are recourse. The first lienholder definitely cuts its losses on a short sale. If the best price is the short sale, then the first lienholder does have something to gain on the short sale, because it will definitely lose money if it forecloses. Therefore it could throw some money the second lienholder's way.
The second lienholder is asking the first lienholder to really investigate the offer. If it is the best, then the second wants a piece of the action. If it isn't, why should the second agree to be unnecessarily wiped out?
The other possibility is that the homeowner will sign a note for the 10,000 or so.
I don't know where this idea that a second lienholder has no economic rights in such transactions came from. If second lienholders always agreed to short sales that only paid the first lienholder, every realtor out there would be telling prospective buyers to just cover the first with their offer.
Are most HELOC non-recourse? If not, can't they go after other assets to cover the loan?
Well, most HELOCs are "recourse." But in the current context we are talking about borrowers who open the HELOC when they have "other assets," and then not borrowing against it until they have gone through all their other assets.
So it doesn't do much for a lender to sit around waiting for the borrower to draw down in a "catastrophe."
And since you can't predict who will do that, you just start cutting off lines that have been sitting there unused since origination.
However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.
You are making incorrect assumptions about housing bears. I am one, and I resent your innuendo that I am somehow jealous of your wonderful life. I'm not. I'm just not fond of purchasing overpriced assets. I am also in Los Angeles, quite a different market from yours, so I look at the world a bit differently.
FYI, I could probably purchase a house on your street for cash. And put old refrigerators on the lawns, and cars up on blocks. And dogs. . . lot's of dogs. Howdy neighbor!
it strikes me that this would result in an awful lot of negotiation (i.e., expenditure of paid human time) between lenders who might be in exactly the reverse positions on other loans.
I would suggest we bear in mind that the only thing the press is interested in reporting on are the ones that fall through.
I'm quite sure there are plenty of short sales out there where the first and the second worked something reasonable out, at least in part because they know it'll be them next.
But you don't get headlines in the Times that read: "Rational Lenders Negotiate Reasonably For Once."
Once again this is a classic case of banks mispricing risks.
HELOC's at prime or prime plus a quarter do not take into account that they are in a subordinated position.
How any of these institutions think that the rate on a junior lien should be less than the senior mortgage rate is unfathomable. Not only is the rate insufficient they now are recognizing the collateral is insufficient as well.
You can get out of those heloc's by filing for bankruptcy and including the house, even if the heloc was taken out way after the 1st mortgage, the heloc lender cannot come after you if you file for bankruptcy.
Victoria M. writes:
You can get out of those heloc's by filing for bankruptcy and including the house, even if the heloc was taken out way after the 1st mortgage, the heloc lender cannot come after you if you file for bankruptcy.
some on "The Daily Show" said months ago this is the new kind of class warfare, soak yourself up with debt then go Bankrupt.. i see a HELOC run coming soon and to be fair may your only chance to get some back before the FED ruins the country complette..
(btw can they seize food in a bankruptcy? like tons of canned food???))
"However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income."
Ignoring the insipid snobbery, you seem to misunderstand the relationship between median house price and median income level, for which data goes back about 600 years.
Maybe the Wright Model B has something to say about it though, hadn't thought of that.
I cry foul here. I've stated, more than once, that there are plenty of affordable houses available everywhere and even in and around LA. What you are saying is that you'd like these to be in places where you PERSONALLY want to live. That is the hypocracy that Sebastian is complaining about.
You said "overpriced asset" but that is in YOUR opinion. The market will tell you what is overpriced or not. If someone can afford it and pays it, then it isn't overpriced. If you think the houses in Newport Beach are overpriced, I might suggest that they always will be realtive to what some people make.
Your post smacks of as much entitlement, JBR as the original. YOU want to say what's overpriced. And also, frankly, if you tried what you suggest in my neighborhood, we have statues that protect us from such behavior, so you'd be fined. Part of living in an area of 1M+ houses is the rationale that others can afford the price of admission. It's not always about square footage.
Today's lesson? HELOC? Further evidence of lenders tightening? Or the pivotal role of short sales in the nationalization of the mortgage industry? (hint, choose the latter)
IMHO, the MSM continues to mistakenly characterize foreclosure as the nations 800 lb housing gorilla, when in fact, it's actually "short sales".
As reported yesterday, housing prices continue to freefall with no bottom in sight. In that environment, short sale "costs" increase as home prices decrease (i.e. cost = difference between mortgage face value and home resale price). In short order, short sale cost quickly exceeds those associated with foreclosure.
Although often portrayed as the lenders most unsavory option, foreclosure results in the possession of a tangible asset (i.e. home); whereas, short sales result in lender write offs that grow larger as home prices plummet.
IMHO, short sales, not foreclosures, will be the primary driver behind the nationalization of the mortgage industry. TA
JBR said: "...I'm just not fond of purchasing overpriced assets..."
By what standard? Housing price in relationship to your income, right?
A lot more people can afford a Civic or a Corolla than a Lexus. So why is a Lexus so much more expensive, why doesn't the price drop down to the price that most people can afford, even during a recession?
Ans. Because the price of a Lexus isn't dependent on the support of people with median incomes, but of the people who can afford a Lexus.
Cities like L.A, San Francisco, NYC, etc., have always had expensive housing, driven by whatever-it-is that attracts people to those cities. Those factors (employment oportunities, access to cultural events, climate, etc.) support housing prices there.
If you're living in L.A., make a good income, can't afford a decent house in a decent neighborhood, but choose to live there *anyway, that factor helps support expensive housing there.
Multiply that effect by the actions of hundreds of thousands (millions) of other people who live there.
If you really want housing prices in L.A. to drop, move. Vote with your feet, get a few hundred thousand people to go with you, and go somewhere that your income can get you a decent house. That will reduce the demand for housing in L.A.
If housing where you live is too expensive, I sympathize. Maybe it's priced wrong, but maybe it's not.
It's good to see someone reading newspaper stories with a few tons of salt. Fact is that the ordinary course of bizniz isn't going to sell dead trees. Journalists need a narrative, and "Let's you and him fight" is the model.
Sebastian, I thought you promised me the other day you were going to stop hijacking threads because you personally feel that you have been victimized by other commenters' "hypocrisy."
Remember, your new MO is a grownup who really doesn't care what idiots think.
Dr. Deflation said: "Ignoring the insipid snobbery, you seem to misunderstand the relationship between median house price and median income level, for which data goes back about 600 years."
It's not insipid snobbery at all. If I were to move to L.A. with my current income, I'd be priced-out of the housing market just like so many others who live there.
I'm just trying to view conditions from an objective point of view. Are housing prices "too high" or are they just too high for my income?
The answer, it turns out, depends on where you live and not the level of prices.
Tanta said: "Sebastian, I thought you promised me the other day you were going to stop hijacking threads because you personally feel that you have been victimized by other commenters' "hypocrisy."..."
why people think they are entitled to "home equity line of credit"? why they think they are entitled to have lender give them money? shouldn't lender be the one decide if they will lend?
However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.
Whoa. That's some seriously distorted thinking there, pal.
Just to put your mind at ease: I don't care how much you make or how much your house costs. I just have this theory that when there are more overpriced houses than there are overpaid punters, real estate prices are likely to go down. It's nothing personal. Honest.
[i]However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.[/i]
Ultimately there's no way around the mean value theorem of Calculus... the median house price in any given area has to be a function of the median income in that area. This isn't a social or moral argument. It's raw mathematics.
Is it helpful to use your HELOC occasionally to avoid a line cut?
It is amazing how you can get a lender to treat you when you actually, you know, pay a little interest.
I am not saying that using your line will keep it from getting cut off. But for heaven's sake, letting it be all potential downside and no current profitability to the lender is not positioning yourself for making the cut.
the median house price in any given area has to be a function of the median income in that area. This isn't a social or moral argument. It's raw mathematics.
AlanY
This just isn't true. The median salary person doesn't need to be matched up with the median house. The housing market can roll along quite nicely at huge multiples with the right conditions. Not only that but there are not classic gaussian distributions in both income and home prices. Here in Ventura County the median household income is ~$60k but that's not the people who are buying houses. There's 10s of thousands who earn farm wages or clerk wages who aren't buying at all. They depress the median household income and make it look like houses are unaffordable.
Is it helpful to use your HELOC occasionally to avoid a line cut?
Well, I'll give you an example that backs up Tanta. I have several credit cards and I rarely use them. Recently one of them cancelled my card (specifically because I never use it) and two others lowered the credit limits.
Now, I'm a pretty darn good risk on paper by anyone's estimation. I take it as a sign of trying to control possibile outcomes. I think that banks are just culling the outstanding lines to avoid having people use them in the downturn and to reduce any possible exposure. It would be interesting to note that the cancellation for non-use was on a card from WaMu. I'm sure they really wanted me to call, but I won't. I don't need the card...I mean really, I have one card with a 24k limit. Does anyone really need a line that big?
Ten or twelve years ago I was having a bad day, and experiencing a brain fart, I mistakenly thought that if I accepted a credit card offer from a given company that they would stop calling me to offer a card. So I accepted it. Every once in a while they send me an updated card, sometimes raising my limit, and direct me to call to activate the card. I ignore them, and the process repeats. Can I hope that sometime soon that they will cancel the account and stop calling me to take their card, which is all I ever wanted of them?
Rob, that's not true. Huge multiples over median income are unsustainable in the long run. High multiples indicate that the total money supply available to pay for housing is less than the sum of prices being asked by sellers. Hence, house prices must fall. This is, again, a corollary of the mean value theorem of Calculus. (Unlike "theories" in economics, theorems in mathematics are true regardless of whether people want to believe them or not.)
This may not be intuitively obvious to people because we're used to thinking in discrete units (single home prices), but it's nevertheless true.
Rob, that's not true. ... a corollary of the mean value theorem of Calculus ...
What does the mean value theorem have to do with this?
In theory, R.D. is right, as long as there are more people with incomes than there are people buying houses. Suppose you've got three people: two making $100/yr and one making $1,000,000/yr. Their median income is $100/yr. If the "member of the productive class" lives in an easily affordable $1.5m estate and the two serfs live under a bridge somewhere, then the median house value is $1.5m, or 15000x the median income. In fact, it doesn't matter how many serfs there are or how little they're paid. As long as the size of the productive class doesn't change (i.e., when Dawg decides to sell and retire to Costa Rica, someone else who can afford to buy his house decides to move into the area), this is theoretically sustainable. I don't think these circumstances actual hold anywhere -- housing values really are unsustainable in a lot of areas -- but I don't see how calculus tells us that they can't hold.
Is no one else bemused by the insinuation that a lower HELOC is somehow affecting the house? I suppose that in some tenuous manner you could defend this but it points to the sense of taking the blanket reduction as a personal assault.
AlanY writes:
Rob, that's not true. Huge multiples over median income are unsustainable in the long run.
I just finished explaining why it is entirely possible. Replying with "is not!" is not a productive discussion. Ventura County has a 67% homeownership rate and a $60k median income. That shouldn't be possible according to you. I live in a million dollar house but TCO is far less than $2000/mo. I sure couldn't afford it at $10,000/mo but my house is part of the huge multiple that has persisted for a very long time. It doesn't hurt that we have very low property taxes and very low heating costs, no cooling costs and very low mantainence expenses.
High multiples indicate that the total money supply available to pay for housing is less than the sum of prices being asked by sellers.
That's not true. you don't need to sell to the average person just one person. you've mistaken some kind of one-to-one corespondence of household incomes and home prices. They don't map that way.
Hence, house prices must fall. This is, again, a corollary of the mean value theorem of Calculus. (Unlike "theories" in economics, theorems in mathematics are true regardless of whether people want to believe them or not.)
You've tried to integrate over a discontinuity. Sure prices are going to fall but nowhere near 2.5-3x median income. That would be $150k-$180k. Currently the median is $500k down from a peak of $620k.
This may not be intuitively obvious to people because we're used to thinking in discrete units (single home prices), but it's nevertheless true.
It's a good thing this isn't intuitively obvious because it is wrong.
The $64 dollar question is, what sort of expense qualifies as a 'good' use of a HELOC? Not, e.g., 'catastrophic' medical bills, not home improvement (doesn't increase the value of your property, not any more, anyhow), not consumption (as some are now discovering).
Necessary repairs, to keep the value of the house. If some damages are left unrepaired, they get worse.
Your post smacks of as much entitlement, JBR as the original. YOU want to say what's overpriced.
No, not really. I base my "overpriced" belief on the fact that, in areas I'm interested in, nothing is selling. Prices in much of the city of LA were driven up by EZ money and speculation. Now that that's gone, prices will adjust. It's happening, but it'll take a while. I'm in no hurry.
Also, I was responding more to the tone of Seb's post. I have no sense of entitlement, nor am I too poor to buy a house. Prices are falling, I'm waiting. Oh, and I'd pay the fine. I'd categorize it as an entertainment expense.
SDrenter,
Yes, and far more polite than my answer. Thanks.
As to: (i.e., when Dawg decides to sell and retire to Costa Rica,..)
My brother beat me to it (Nicaragua). Me, I'm going to buy 1200 acres in the Berkshires and a D5H from Mr. Dryfly and build a 4 season membership resort with airstrip. All my members won't be from the lower quintiles either.
The $64 dollar question is, what sort of expense qualifies as a 'good' use of a HELOC?
My HELOC went to:
Replacing the 45yo cedar shake roof with fire resistant shigles lowering my insurance bill.
A freestanding office/shed thus freeing a bedroom for separating siblings and saving on medical and psychiatric bills. Also makes the home office deduction unassailable.
Coming soon; 4kW PV rooftop installation with a ROI of about 6 years.
By what standard? Housing price in relationship to your income, right?
Uh. . . no. Based on price in relationship to the incomes of people in the areas I'm interested in. As I said in the reply above, virtually nothing is selling. My problem is this:
In other words, they feel entitled to own something they can't afford to buy.
"the price of my house has to come down to a point where they can afford it on their income."
OR, as in NYC, we adopt another strategy. We make skimpy little units that people can afford out of the bigger units that people cannot afford. It's called apartments. Of course, these too have been known to inflate in value eventually.
FYI, I could probably purchase a house on your street for cash. And put old refrigerators on the lawns, and cars up on blocks. And dogs. . . lot's of dogs. Howdy neighbor!
Boy, when your bailouts fail they really fail, don't they? While she's not financially irresponsible, she has a heck of a risk profile right now with so much in real estate.
Naive question perhaps. I would think there would be a stronger distinction between seconds that were piggy backs initiated on a purchase and seconds that were entered into later. Are they similar enough to talk about them interchangeably?
llano llama, the issue for today's post isn't when the HELOC was originated, it's when (or if) money is actually drawn out.
In any piggyback used to purchase the home, by definition a balance was created (the money was borrowed to pay the seller for the house). It might have been a HELOC that had a larger limit than necessary for the purchase transaction. Say, you needed $50K for the purchase and you got a $100K line of credit. That means you started out with a $50K balance and may or may not have drawn down the remaining $50K limit at some point after the original purchase closing.
"There's 10s of thousands who earn farm wages or clerk wages who aren't buying at all. They depress the median household income and make it look like houses are unaffordable."
In all fairness, the farm workers are probably undocumented, so their incomes aren't really counted, thereby artificially inflating the median income for the area.
"Where in the hell is 6.375 money coming from on a fixed 2nd, 10-20% ltv w/ a three year prepay?"
Do the home owners taking out the second have significant equity in their home - i.e. have they paid off enough mortgage to actually own a piece of their home even at current house prices (minus an additional drop forecast)? If they are not "underwater" then lending to them might still make sense.
Of course, people who actually take these HELOCs are gambling a house that they have invested heavily in and/or have lived in for a long time. Banks cannot have that now - need their revenue.
In all fairness, the farm workers are probably undocumented, so their incomes aren't really counted, thereby artificially inflating the median income for the area. - transient
They are most certainly counted any number of ways. The Census gets a most of them, the State near all of them and they are included. Just look at the Census data for income distribution.
http://factfinder.census.gov/servlet/STTable?bm=y&-geo_id=05000US06111&-qr_name=ACS_2006_EST_G00_S1901&-ds_name=ACS_2006_EST_G00
notice Median $72,107 and Mean $91,371. For a universe of 259,093 that's a huge gap.
The problem with a second position lien is that the "security" is a second class security. In the event of default on the first, the second has to pay off the first to get it's security, if any, back.
You could look at the median income amongst the top X% where X is the percentage of households that own an home. Have to assume that the top income earners are the home owners though.
I don't think you are arguing that median income has no relationship to house prices in the long term - it is more an argument over the magnitude of the multiplier. Am I right?
I don't think you are arguing that median income has no relationship to house prices in the long term - it is more an argument over the magnitude of the multiplier. Am I right? - foo
Things got a little technical. Yes, that is what it looks like in practice, the multiplier in some cases appears high. The reason for that is where the technical stuff comes in. In our example a large group of lower income workers are included in the median income but are not really candidates for homeownership. There are even more distorting factors. The last few years of new housing was mostly high end pushing the median way up while making little price impact on the body of stable existing housing.
The last few years of new housing was mostly high end pushing the median way up while making little price impact on the body of stable existing housing.
I take it that you mean the mean was pushed up.
And no, phrasing like "mean the mean" wouldn't cut it in my professional writing.
No, the "mean of all housing" and the "median of sales prices" were both pushed up. The existing houses could have stayed the same price but these new McMansions by themselves could have pushed both metrics. as it was existing houses got pulled up as well. In 1961 my house was considered high end executive at 2600sf. By 2005 that was on the small end of new houses being built.
Let's side with the banks that created the HELOC product. First the big sales push to borrow...then withdraw the credit. Some of these HELOCs were borrowed for home improvement. Then the rug gets pulled. It's the extremes of easy lending to pull the credit plug that is creating chaos. The banks need intense regulation apparently not deregulation! The banks(incl. the Fed) create the insolvency cycles!
So enough new stock was built above median to shift the median cutoff line significantly. What is your baseline year? What percentage of houses that exist today are new stock since that year?
If your baseline year is recent then that is pretty amazing.
HELOC's at prime or prime plus a quarter do not take into account that they are in a subordinated position.
Just so no one gets too excited about Prime bear in mind that it is no longer the rate that banks charge their least riskiest customers and hasn't been for 20 years. Prime is a rate that has historically had a fair bit of risk premuim built in. The Prime to Libor Basis has been banded between 250 and 300 bps per year. That means if you were to swap prime to libor you'd get Libor + 250-300 depending. Now if you take Libor and had swapped it to fixed depending on when you did it you'd get 4.16 today for 10 year or 4.72 for 30 year. That means something at Prime and 1/4 would be the equivalent of roughly 7.16 on a fixed rate basis for 10 years. This of course ignores all the optionality etc. in the HELOC (which is the problem in my opinion) but from a credit perspective it's not really that poorly priced.
The mistake being made isconflating average house price with aberage home price. In sdrenter's example, the median house price was $1.5MM, but the median home price was 0.
The theory that median income and median home price are related holds, over the long term, I think. But homes have to include apartments, and even tents if it comes to that.
Spoilers include commuters, but even there, if things get too crazy, things get crazy. I understand that tradespeople are REALLY expensive in the Hamptons, because you're paying for an hour each way of gas and travel time. Martha's Vineyard is even worse. [Not directly related to median/median theorem, just an example of consequences of remote communities with extreme barriers to entry.
Well, nice to see my Zillowed Away (c) meme is going great guns. I predicted this waaaay back in November. Now, if I was a really smart hedge fund, I would be buying this stuff at 25 cents on the dollar, and seeing if the folks who borrowed it are willing to pay 50 cents to clear it;-}
I agree with Rob Dawg, home improvements are a good thing. Or as I call it, the we need a new roof fund. Ours is currently residing in my wife's brokerage account in a cd. kinda boring, but if we need that money, it had better be available.
Not subject to Ohmygawd we have to cut potential liabilities cause we have too much CDO exposure and the Bank crapital folks might tell us to raise another ginormous amount of capital to cover all of our immense risk to NINA loans.
Just sayin', bird in hand worth many banker promises.
foo writes:
So enough new stock was built above median to shift the median cutoff line significantly. What is your baseline year? What percentage of houses that exist today are new stock since that year?
If your baseline year is recent then that is pretty amazing.
We've been building about 5000 DU per year. 2% per year roughly. I cannot recall any selling for less than 10% below the median at the time. 5000 per year was about 35-40% of all sales. quite a bias on the imputed value of the entire housing stock and the sales price median.
Ipodius, I have never been a debt-inclined person. But you're making me want to carry a balance on my cards to keep them from being taken away - just in case there's an emergency. I had a balance transfer rate a few years back 1.9% fixed forever, but paid it off because it bugs me to have a debt hanging over my head. But in today's society, if you don't borrow, you're not a first class citizen. So maybe I SHOULD open one of those HELOCs just to keep the ol' options open.
Whodathunk on this bear blog I'd be persuaded to consider taking on debt?
Total spent on housing and total income are related, precious little else.
Actually if you could find data that had this broken down by zip code, you'd probably be able to really see what is happening. But, of course, for those whose income was stated...maybe not so much
OK, I take it back, after a few thought experiments. Medians mean nothing. Total spent on housing and total income are related, precious little else. - Ralph Cramdown
Medians can tell you a lot just remember they are a statistics and carry all the associated warnings therein.
So many things go into housing prices that it should be a degree program. If California were to break covenant and suddenly eliminate Prop 13, for instance, my taxes would likely triple forcing me to sell at the same time oh, 5 million other people would be forced to do the same. As it is with Prop 13 houses sell at a premium because of the certainty of taxes going forward. The same for tight planning restrictions. The reasonable assurance that house next door won't be replaced with high density "affordable" housing carries a premium as well.
Even total income is subject to much adjustment. In high tax States the HMID is more valuable and the income to house price comparison is not linear. Very low income people cannot afford a house no matter how reasonably cheap while very high income people can afford to spend far more than the usual 28% DTI would indicate as they have more disposable/discretionary income.
But you're making me want to carry a balance on my cards to keep them from being taken away - just in case there's an emergency
Oh no! I just thought it was funny (funny as in strange) that this happened. I was just tossing it out there as a data point about how banks are probably just being proactive in the face of a downturn. Also it as WaMu, so I took that as a sign about how things are going internally.
True dat Rob Dawg, but to do some analysis about home prices, bottoms, etc I think the income/% on housing ratio is very close to the ground about many things...even likely rent. As I said, I'd like to see that by zip code.
For what you are saying, look no further than some tony little vacation enclaves. Most people there don't really need to see, and no one really needs to buy, so the dynamic is different. Of course now, we find out who really does, and just was saying they don't
iPodius Rex,
i sold my last tony little vacation enclave income property April 2006. I know exactly what you are talking about but this time is different. It is worse. a lot of people in 92397 were "swimming naked" with negative cash flows or down payments from primary home equity withdrawal and the like. Indeed the last house I sold is back on the market for less than I got. BTW, I sold to my own realitter.
Gee Rob Dawg, you seem like a hypocrite to me. Sell your property at the peak of the market and then criticize lenders, "realitters" and others for their behavior.
You fit the profile of a guy who sold all his r/e and expected prices to drop to 1978 levels in 3 months. Meanwhile you move into a trailer or maybe your mother-in-law's garage. Then you realize that all that paper money you are sitting on is rapidly declining in value. Which is falling faster, the US dollar or the value of real estate?
Should have read up on real estate cycles before you sold your house. Real estate is notoriously slow on downside corrections due to a) the inability to take short positions on real estate b) the tenacity to which people cling to mortgaged property c) the slow process of foreclosure d) unrealistic seller and buyer expectations. "Denial" is not just a river in Egypt. Read "Progress and Poverty" by Henry George. He didn't have all the answers but made some very astute observations that ring true to this day.
When you can't take the trailer or mother-in-laws garage anymore, you'll pay double for a house half the size of the one you used to live in.
Zarley writes:
Gee Rob Dawg, you seem like a hypocrite to me. Sell your property at the peak of the market and then criticize lenders, "realitters" and others for their behavior.
Well gee Zarley, you seem terribly uniformed and nasty and a poor reader to boot. I didn't want to sell. this last was paid off and fully depreciated earning good coin. The market got crazy and I had too much at stake to leave in such a concentrated sector.
You fit the profile of a guy who sold all his r/e and expected prices to drop to 1978 levels in 3 months.
No, I sold all my non-personal use real estate.
Meanwhile you move into a trailer or maybe your mother-in-law's garage.
The house next door is for sale $2.4m. Across the street $5m and two to the left $2.3m. The trailer life been very very good to me.
Should have read up on real estate cycles before you sold your house. Real estate is notoriously slow on downside corrections due to a) the inability to take short positions on real estate b) the tenacity to which people cling to mortgaged property c) the slow process of foreclosure d) unrealistic seller and buyer expectations.
You've correctly described how things used to work. You know from the time when the NAR was saying that housing prices NEVER went down. Stickiness still a working theory after the Dec-Jan and Jan-Feb numbers?
"Denial" is not just a river in Egypt. Read "Progress and Poverty" by Henry George. He didn't have all the answers but made some very astute observations that ring true to this day.
Oh, great, a Georgist. and one who assumes others aren't as educated as they. A winning combination. Not.
almost two years ago to the day i had an analysis of property taxation with respect to Georgist views: Exurban Nation: Son of George
When you can't take the trailer or mother-in-laws garage anymore, you'll pay double for a house half the size of the one you used to live in.
Citi is still advertising these on Google. So unless they are paying to advertise products they don't sell, I expect that it is really based on their view of the California real estate market.
Businesses, especially smaller ones, have loans called in credit crunches.
Looks like Nina will be learning a lot more about credit and leverage in the near future.
LOL...if I gain any more weight this winter, I'll have those little Rex arms that don't go over my belly
You are on the money. Here in 02657, we're now seeing who is nekkid because the tide has done long gone out. There is over 2 years of inventory on the market right now. Over 2 YEARS. I think everyone thought it was the Hamptons for a while. But, you know, they can hush up the carnage with short sales a bit. Very few FCs, but when there is one, the price is making people's eyes water. We'll be finding out who was levered up this year.
Here in 02657, we're now seeing who is nekkid because the tide has done long gone out.
P'town? You can just walk down Commercial Street iffen you want to see nekkid peuples. One of my aunts owns that little house right at the entrance to the Pilgrim Memorial. I used to "summah theah." Nothing like the first Friday night after Labor Day. Wicked pissah.
Nostalgia aside, you are so right. P'town and the Falmouths and Chatham are nothing but leveraged investments waiting for a margin call.
Anybody know about reserve requirements for an open HELOC line? There is a rumor I read a while back that suggests closing HELOCs is more about the reserves than declining values (which, if this is the case, is a good excuse to close or lower a line).
Rob Dawg, what is the difference between the nighttime rate and the peak daytime rate at which you can sell back your solar power. They closed down rate schedule up here a year or so ago that was around 1:3. It is now around 1:2 with a less generous "peak rate window"; definitely regret missing it. I am fairly low on my energy usage so I don't hit the higher marginal rates much and its harder to cost justify a solar installation.
Rob Dawg, what is the difference between the nighttime rate and the peak daytime rate at which you can sell back your solar power. They closed down rate schedule up here a year or so ago that was around 1:3. It is now around 1:2 with a less generous "peak rate window"; definitely regret missing it. I am fairly low on my energy usage so I don't hit the higher marginal rates much and its harder to cost justify a solar installation.
Technically SCE is supposed to buy back at retail aka run the meter backwards but they make that near impossible with any number of obstacles. Near as I can tell in practice it is repurchased at Tier 1 residential currently $0.09490 I think.
National City wouldn't allow my subordination when I tried to refinance lately. It makes some sense that they want to be paid in full to get out of as many HELOCs as possible. But the downside is adverse selection.
The market for second leins is almost dead but when I refied a month back rates on 30-year first leins had fallen to 5.25%. The only way I could get a second was through a credit union for a 15-year term and I didn't have the cash to totally pay it off and stay under the 417k conforming limit on the first lein.
The issue is that National City is going to lose all of their HELOCs and Seconds from their most credity worthy borrowers that are able to get a second lein in today's market. Eventually the average credit profile of their portfolio will decline.
Refinancing the first trust at a lower rate or a fixed rate will make a borrower more likely to be able to pay the second trust and would reduce Nat City's credit risk.
Blanket prohibitions on subordination are a bad idea and will spell trouble for banks. Subordinations should be considered on a case by case basis.
You obviously have not read Henry George's theory on real estate and business cycles... Real estate does go down. Slowly, very slowly. A slow death, like cancer or a slow blood loss. NAR would not subscribe to George's theory publicly. Secretly perhaps but not publicly.
So you are looking at the last three months of data??? My point exactly. You expect price corrections to occur in 3 months??? They begin to pick up speed as the bust deepens, that is true.
Why don't you just read the book? If you define a"George-ist" as someone who thinks that real estate booms and speculation have an effect on business cycles, then I'm a "George-ist". He had other beliefs which I do not subscribe to.
Read. Read. Read. I would say I am more educated than you. Yes.
How shall we prove it? Make a prediction and stick to your guns.
You have just notified the world that you are a hypocrite and have made millions off of real estate. You are part of the problem, not the solution.
I do not live in a 2 million dollar house. I rent a condo and live a fairly modest lifestyle that includes a lot of reading..
Shall we duel w/ our intellects? I welcome the opportunity. Hypocrite.
I do not live in a 2 million dollar house. I rent a condo and live a fairly modest lifestyle that includes a lot of reading..
Shall we duel w/ our intellects? I welcome the opportunity. Hypocrite.
Zarley
I'd say for some you just conceded the point but no matter. Ye are shunned by me on CR henceforth. Leave a dropping on my blog if you want toss around fighting words and insults but forewarned it's a tough crowd.
Should financial education be made mandatory in schools like math and science considering the important role finance plays in people's lives? For people like Newport Beach Nina, they need to be locked up and given a healthy dose of financial education until they live and breath the proper and right concepts. Harsh comments, yes. But I can't believe that this is the nonsense that is floating around on the Internet. Should the web/net be regulated like the TV and Radio? Me thinks so.
If your HELOC or home equity line of credit was frozen, suspended or reduced by your mortgage lender or bank, you can share your home equity line of credit or HELOC complaints with other HELOC borrowers whose HELOCs were frozen:
If Citi had used Zaio, they wouldn't have this problem.....
I'm sorry, what's "Zaio"?
Banks, like insurance companies (and nurses), are in this to make money. They are not in this to "help people". Sorry if I sound cynical, but thats how it is in a capitalist country.
You don't qualify for a HELOC in the same way you qualify for a mortgage: one time process, then set for term. HELOC is an ongoing qualification.. people whining that it got reduced out of the blue appear not to understand that.
Tanta,
I could see one reason for Ms. Newport Beach to be rightfully upset.
Had she been offered $10k, she probably would not have spent the time and the closing costs to obtain it.If the bank reduces the HELOC substantially, they probably should retroactively reduce the closing costs.
The theory of martingales.
Reminds me of how I was shocked to read this article by MSN's Liz Pulliam, "The $0 Emergency Fund."
Oh, and the money quote, "Ive always looked at that line of credit as my money."
Yes, and I bet you also think that you own your house too.
"I don't think it helps much to build up certain people's sense of entitlement"
Your talking about Americans here. One of the reasons they are so stupid is they read newspaper stories just like that one. Extraordinary indeed.
...because the first thing you should do when you lose your job or get ill is take on more debt!
Don't these people get that they have to make MORE payments on lower income after this happens?
Had she been offered $10k, she probably would not have spent the time and the closing costs to obtain it.If the bank reduces the HELOC substantially, they probably should retroactively reduce the closing costs.
First, I doubt she paid much to get that HELOC.
Second, you're falling into the same trap she did: the line limit on a HELOC is based on how much equity you have. The contract does not guarantee that you will always have equity.
She thinks Citibank was charging her closing costs (of whatever amount) for a guaranteed dollar amount, but it wasn't. It never is.
Citibank doesn't have to refund closing costs to her because the denominator of a fraction changed. That denominator (the value of the home) was always at risk.
Just good negotiating on Citi's part here. If the house goes into foreclosure, the first lienholder will lose tens of thousands. With only 1,000 of their loan at stake, Citi should play hardball for 10 or 20 thousand.
I don't like the idea of a bailout plan that allows the first lienholder and the borrower to renegotiate and wipe out the second without consequence. It create incentives for collusion where the seconds are wiped out by an excessively low refi and some backdoor or under-the-table kickback is provided to the first.
So just how is the HELOC lender better off by having the home go into foreclosure rather than accepting a short sale? The 2nd mortgage lenderr will lose everything in either case.
It seems as if the decision of lenders to prevent short sales doesn't end up helping anyone. It's not as if borrowers will continue living in a home that is under water making payments (that would be an insane financial decision).
I suppose that HELOC lender recalcitrance might convince 1st mortgage lenders to be a little more generous in splitting some of the money they stand to get with the HELOC lender, just to make them a little more compliant. But that seems like quite a long shot.
So many of these HELOC's were offered with minimal or no closing costs! She's probably lucky to have the $10,000 line. Wonder if she could even get a new HELOC if she wanted now!
I read this excerpt before I saw it here and I was really struck by the logic. I might rationally point out that no one out there HAS to loan Ms Newport Beach anything on the equity she may or may not have. That is a financial innovation at the discretion of a bank. If the equity exists, and she has an unfortunate turn of events, she can always solve the problem the good old-fashioned way: she can sell the asset and take the cash. She is not willing to do that and thinks the world should help her stay in her ostensibly 1.1M home. It boggles the mind, the entitlement here.
You see, she forgets the one thing about asset prices she should know if she's as astute as she makes herself out to be: it isn't worth anything until you sell it. That seems to be THE fundamental problem in the markets now, as a matter of fact. She might as well have a CDO. She's marking the house to HER model. Perhaps Citi's model is different.
It seems as if the decision of lenders to prevent short sales doesn't end up helping anyone.
So what you're suggesting, Sniglet, is that Junior liens should just OK short sales in all circumstances? Sorry, it's not that simple. I think if ol' Randy "retired", he must have other assets he could tap to pay off his obligation.
In the old days, one really had to prove that one was flat broke to get an OK on a short sale.
I suppose that HELOC lender recalcitrance might convince 1st mortgage lenders to be a little more generous in splitting some of the money they stand to get with the HELOC lender, just to make them a little more compliant. But that seems like quite a long shot.
It might be a long shot, but what does the HELOC lender lose by trying?
If your choice is getting wiped out today, or possibly getting wiped out in the future, what's the problem with taking a gamble?
The $64 dollar question is, what sort of expense qualifies as a 'good' use of a HELOC? Not, e.g., 'catastrophic' medical bills, not home improvement (doesn't increase the value of your property, not any more, anyhow), not consumption (as some are now discovering).
In principle, I guess, some sort of investment would be 'good' debt rather than 'bad' debt-- but I also guess that the lender would like to know about that investment.
ipodius:
It truly boggles the mind but seeing what my girls kids learn in scool (here in spain) i dont wonder anymore...
i try hard to teach them common sense but i feel like a lonely soldier..
invest in educatíon in the next years i say a sure growing need will arise...
In the old days, one really had to prove that one was flat broke to get an OK on a short sale.
YEP.
In just a few short months--as it were--we've decided we're all "entitled" to a short sale, too.
Cash out refi's people. If you are going to play this game, put the odds in your favor.
Also, too late for most of you.
Reduced to $10,000!? Hello!? Please dont f-ck with my house in Newport Beach
Of course, Im calling them today to dispute it.
Ms. Newport Beach (who apparently drives trucks part-time) doesn't seem to understand the concept that the money used to drive house prices up in her area was coming from the banks, not the homebuyers.
If the banks don't think her house is worth a certain amount then that pretty much seals the deal, unless we've got a bunch of homebuyers running around willing (and able) to stroke checks for hundreds of thousands of dollars.
Something I think is real f-cking unlikely.
I'm struggling to remember a single word of any media story during the boom educating borrowers on the "smart" uses of a HELOC. Nothing comes to mind, sorry.
Given that most press reports result from press releases by some business or other, wonder why that could be?
If your choice is getting wiped out today, or possibly getting wiped out in the future, what's the problem with taking a gamble?
And unfortunately this is an iterative process. The first ones to say no catch the early short-salers in the cross-fire. But I'm certain that they will hold the sale hostage unless they get cut in on some of the money to do the deal. Hell, I would do it if I were getting nothing as a tactic to say to the first lienholder "Anytime this exists in the future, you can kiss the short sale goodbye if I hold the subordinate, and take the bigger loss." Makes perfect sense to me. Probably not to the people that are trying to dump the property though.
12th Percentile writes:
Cash out refi's people. If you are going to play this game, put the odds in your favor
woulndt this equal a bank run?? cash out all credit lines?? just asking....
2nd lien holders are sunk. I'm surprised they didn't see that coming.
I'm also surprised a nearby bank is still offering HELOCs, no closing costs, to 90% equity. That's playing with fire.
About using HELOCs as emergency funds, the eternal optimism of Americans, which I see as a strength usually, is thinking along the lines of an upcoming windfall coming from who knows where, but surely somewhere.
Thus, the next bubble: gambling. Coming to every city near you.
Smart use of HELOC? You know someone in the remodeling biz who is about to give you a new wing on your house at well below half of what it would cost to hire someone at market prices. Not much else comes to mind.
I'm struggling to remember a single word of any media story during the boom educating borrowers on the "smart" uses of a HELOC. Nothing comes to mind, sorry
My HELOC is fixed forever at .25 above prime. I kid you not. The rate on mine now is south of 5%. Are you kidding me? Why would I ever carry a credit card balance for anything? I retired an old grad loan that was 7.25% to it. AND it is tax deductible to boot, which my old grad school loan wasn't because I make too much money. The trick is, of course, to be able to pay it off if the rate climbs.
Smart use of HELOC?
Nursing school tuition.
...what's the problem with taking a gamble?
The fact that they made these loans in the first place demonstrates their lake of risk aversion. They're not going to get conservative overnight.
I don't know, racerx. What's the old proverb about facing the scaffold tending suddenly to concentrate the mind?
Nursing school tuition
Here is a great by-product of the credit boom years. I have one last Federal loan through Sallie. I got a chance to lock it in a couple of years ago at...drum roll please...2% fixed. Yes, that actually qualifies as an investment doesn't it?
Didn't we have an article a couple of weeks ago about someone doing a straight re-fi of their first mortgage, and the second not allowing it to go through?
2% fixed. Yes, that actually qualifies as an investment doesn't it?
I'm sure in a lot of portfolios, down 2% is beating their investments.
[i] Tanta writes:
Smart use of HELOC?
Nursing school tuition.
Tanta | 03.27.08 - 9:46 am | # [/i]
Naw, use it for online no-limit Texas hold 'em.
"woulndt this equal a bank run?? cash out all credit lines?? just asking...."
Call it what you want. I call it buy low, sell high. I call it making sure I have control of my future instead of leaving that up to people who have ruined the economy.
It doesn't matter at this point. They took all the money and spent it. And now can't pay it back.
If the equity exists, and she has an unfortunate turn of events, she can always solve the problem the good old-fashioned way: she can sell the asset and take the cash. She is not willing to do that and thinks the world should help her stay in her ostensibly 1.1M home.
Isn't this exactly the same as Bear Stearns et al claiming their various assets are presently undervalued due to temporary irrational conditions ("run on the bank")?
down 2% is beating their investments
After inflation that would be UP.
Isn't this exactly the same as Bear Stearns et al claiming their various assets are presently undervalued due to temporary irrational conditions ("run on the bank")?
Timing in life is everything. If you have to sell under depressed market conditions, then, as they say in French...you are f&*#ed.
Okay, so I'm clear here; when you ReFi and pay off your first, any currently existing second's or outstanding HELOCs are now senior to the new "80%" loan unless they agree to be made junior to these new loans? Why would they voluntarily agree to that?
Didn't we have an article a couple of weeks ago about someone doing a straight re-fi of their first mortgage, and the second not allowing it to go through?
That was a case where the existing second lien holder refused to "subordinate" while the guy refinanced the first lien.
You could, of course, view that as the behavior of a lender who sees situations like Ms. Newport Beach coming and doesn't want to be there when it happens: Nat City (the lender in question) wanted to be paid off while the borrower still qualified for a loan. On the theory that waiting until the borrower needs the "disability insurance" isn't wise.
(Actually, that case was a closed-end loan, not a HELOC.)
Calculated Risk: NCC Refuses to Subordinate
Excellent point
I'm not expecting any mea culpa's from my old bosses. I can't imagine what the penance would be for pushing high LTV no-doc neg-am loans.
Isn't this exactly the same as Bear Stearns et al claiming their various assets are presently undervalued due to temporary irrational conditions ("run on the bank")?
Billy Hill | 03.27.08 - 9:56 am |
My Ponzi scheme was running fine, until everybody got all irrational and sh!t...
Tanta,
OT. When are you going to drop the other UberNerd shoe about the Good Faith Estimate?
--
I am glad for you, Tanta, that the financial Nazis of America -- Debt Pushers -- have so enriched your life by your knowledge of their evildoings by having worked for them. I don't blame people like you directly but I wonder if you had any sense of the gross wrongdoing of these well-entrenched evildoers. Or, were you so blinded by legalism that the idea of what is right and wrong wasn't part of your thinking.
There is proper lending and right ways of making money, or making a living, and then there are evil ways of making money. Financial Nazis, with their power and control of the Fed and the USG, got lot of Americans involved in their evil and corrupt practices. What we are seeing now is fall out that was wholly predictable. The questions is: Who all are their victims? And how were the targeted?
Jas
when you ReFi and pay off your first, any currently existing second's or outstanding HELOCs are now senior to the new "80%" loan unless they agree to be made junior to these new loans?
That is correct. The technical term is "subordination." It's a written agreement filed in the land records to fix the problem of the new "first lien" being recorded after the old second lien was recorded.
Why would they voluntarily agree to that?
Well, in a booming RE market they'd agree to it because there's no particular reason not to.
This fact was generalized by a lot of people into the assumptiont that they'd do it in a falling market where they were being lined up to take all the losses.
They are most certainly not volunteering to do this these days.
The line in the article that caught me:
"A spokeswoman for National City, Kristen Baird Adams, said the policy [of blocking homeowners from refinancing first mortgages unless the borrowers pay off the second lien held by the bank first] applied only to home equity loans originated by mortgage brokers."
This seems an odd distinction to make, unless they're implicitly admitting a qualitative difference between the two types. And even so, if you're not working out each loan on its individual characteristics, you're not doing what's best for NCC, are you? Maybe I'm misunderstanding.
I have a better idea than using your HELOC as disability insurance: It's called "disability insurance". You see, you sort of pay the "interest" on this HELOC now, and if you become disabled, you get the principal for free!
When are you going to drop the other UberNerd shoe about the Good Faith Estimate?
Well, I've been fooling around with the pdf that HUD published, trying to create a "filled out" one so that the discussion could be a little clearer.
This has not been easy.
Not that I'm asking for sympathy.
Although I'll wallow in it if anyone is foolish enough to supply it.
I love the idea that you all never forget anything. You'd think it would make me more cautious.
Maybe people now nee 20/60/20 financing: 20%-the first formerly known as second/60%-conventional financing second still under the 805 limit/20%-oh wait, you can't FIND lenders that supid anymore.
This seems an odd distinction to make, unless they're implicitly admitting a qualitative difference between the two types.
I suspect there are two things going on here. One, NCC, like everyone else, is seeing much better performance in their retail/direct book than in the brokered book.
But also, those non-brokered loans probably went to customers of the bank. So NCC has your checking account and your IRA and stuff, not just your HELOC. If you are going to take a risk on anyone, you take a risk on your bank customers, not on some other bank's customers.
Jas
Jas Jain | 03.27.08 - 10:04 am |
Watching the battle between the lenders and the borrowers is like watching two snakes trying to swallow each other. I feel sympathy for neither, and I am glad that when it's over, there will be at least one less snake in the world. Hopefully, they'll choke each other. If either survives, we should beat it with a stick.
Figuratively speaking, of course.
Last week you saw CIT grab 7+ billion in unsecured bank lines before they could be lowered (that was my read). I think this article will spawn a high number of similar grabs from HELOC holders who view this as their catastrophy fund. If I had one that is what I'd be doing. How much does it hurt to cash it in and stick it in a money market at another bank. 3-6% ???
Peanuts.
This seems an odd distinction to make
'obvious' - yes. 'odd' - no.
Ideally, it would be some benefits to reviewing each case-by-case, but that takes time and resources. Perhaps operationally, drawing this line in the sand was the more pragmatic approach for them.
So basically a 1st mortgage w/ a HELOC or 2nd lien where you tap it for "emergencies" or "luxuries" etc has the same end state as a NegAmOptARM, but possibly w/o the ARM function, where you end up underwater. The bonus being a 2nd lien holder who cannot book the draw on the HELOC as revenue and they can preclude the HD from a short sale/refi?
National City is apparently treating its depositors differently. I have an account there and they are calling me to sell a HELOC. I didn't bite.
Ms. Newport Beach seems to think that a heloc is an entitlement.
"Of course, Im calling them today to dispute it."
We're talking about the bank here, not a governmental agency!
One of the advantages of living a life of economic solvency is you don't have to spend too much time in petty disputes with bank clerks. If Ms. Newport Beach really has all that equity, I'm sure many other banks are eager to set her up with a hefty line. But on the other hand, if the equity is not there, nobody is going to do business with you, no disputing that.
Mr Duncan: I have a better idea than using your HELOC as disability insurance: It's called "disability insurance". You see, you sort of pay the "interest" on this HELOC now, and if you become disabled, you get the principal for free!
Good idea! Say, I wonder if anybody offers such a thing?
And can we get this noisy duck out of the way, we're trying to have a discussion here.
To have access to cash, Porsche maxed out their lines of credit before their banks could close them. Homeowners can do the same, stick the total in a FDIC bank account and figure the interest difference is the cost of insurance. If it's good enough for Porsche, it's good enough for me.
The articles seem to suggest that some people have grasped HELOCs instead of disability insurance. Wonder why that is? Is disability insurance so expensive? I don't think so (but what do I know?). Rather people probably are not being honest about the fact that they want to spend the HELOC on their own terms, not that of a doctor.
The duck is a very bad deal.
Tanta,
Feedback from the front lines:
In the closing part of my practice in the last week, I did fifteen cash-out refi's. About five were fixed 2nds. This amount is about double last month's total for the same week (last) of the month.
One of the fixed 2nds carried an interest rate of 6.375 (!) and on a thirty-year loan, which itself is unusual.
Where in the hell is 6.375 money coming from on a fixed 2nd, 10-20% ltv w/ a three year prepay?
My guess is 1) FHLB short-term paper to fund, and then 2) GSE long term paper to hold. But how could a GSE charge that and expect to stay in business?
Boggles the mind, but methinks does not bode well for finding a bottom, except in the value of the greenback.
The sense of entitlement shouldn't be a surprise.Homes WERE a liquid investment for years,and tens of millions,perhaps hundreds of millions of dollars were spent convincing people real estate only went up and easy riches were theirs.TV shows,radio ads,full page ads every day in the paper.People were sold on the idea that equity was money "After all it is YOUR MONEY" was the punch line of one ad I heard.And lenders made loans that were insane,an 80/20 loan is at least as risky as going to vegas and putting it all on black.
I have a better idea than using your HELOC as disability insurance: It's called "disability insurance".
I agree, in principle. There are some catches, however. One of them, the one that's biting me in the ass, is that most disability insurance policies will only pay for two years for mental or nervous health conditions. At that point, it doesn't matter that I couldn't conceivably go back to my old job; they stop paying me.
I'm surprised no one remembers Nina from her failed flippin days:
Sitting Pretty: Pardon our Dust
this should put her character in context
later
moqui - excellent link, thx!
This has not been easy.
poor Tanta. can i fan you with a palm frond while you bravely battle adobe for us?
Back When Dinosaurs Ruled The Earth, you were told to use a HELOC for real emergencies--something that had to be fixed right now.
Like, a car crashes through your living room. Your roof fails spectacularly. Something you could find another way to pay for, or insurance might cover, but you have to come up with cash right. this. second. or the damage would get much worse.
las: disability insurance is pretty goddam expensive, and isn't a benefit at my job (it's not uncommon though). but I'm going to have to bite that bullet soon and do it.
Mass General offers it, any others?
k.i.s.s: ugh, that sucks.
here's an anecdote for today:
buddy that does helocs for a well known national bank in sacramento, hears of another branch where a guy buys a $120k boat: $50k non-refundable deposit, $70k check from the HELOC....i think you know the rest.
customer is now suing
DOH!
Anecdote: took my son to the local bank yesterday to open a student checking account. The banker was 20 minutes late for the appointment. He apologized, but said that they had lowered a lot of HELOCs and he was inundated with refis. "People are really having a hard time with this", he said.
There appears to be some confusion about the difference between money you borrow and money you have.
Loan you, own you; borrow, sorrow.
jim a writes:
Okay, so I'm clear here; when you ReFi and pay off your first, any currently existing second's or outstanding HELOCs are now senior to the new "80%" loan unless they agree to be made junior to these new loans? Why would they voluntarily agree to that?
jim a | 03.27.08 - 10:00 am |
Well if your're refi'ing out of a 1st you have no ability to pay (say the 12% loan that the genius from the BSC protest was griping about) into a fixed rate loan you can repay, it makes all the sense in the world to the holder of the 2nd, as the 2nd might actually get payed instead of being wiped out in a foreclosure. The 2nd holder is no worse off than they ere to begin with is the new first is on better terms for the same principal.
While I understand that a second lienholder might be able to extract something out of a short sale in exchange for their release of the junior lien, even if the junior lien is "out of the money," it strikes me that this would result in an awful lot of negotiation (i.e., expenditure of paid human time) between lenders who might be in exactly the reverse positions on other loans. Playinng "hardball" as a junior lienholder on one house might bite the lender in the um, place it hurts to be bit, in another situation where the lender is in first position. Or maybe that situation only arises in the commercial context and doesn't really apply with residential lending. And I suppose the lenders are so swamped and the accounts so distributed they may not even know that they're sticking each other up on different deals at the same time. In any event, it strikes me that the whole negotiation doesn't create any more value or money for the lenders in the aggregate; it's ultimately a zero sum game.
As to the "run on the HELOCS," that seems like a real possibility to me. Which would cause the lenders to pull HELOC commitments more rapidly. And cause more consumers to panic. And maybe even cause them to save money for a rainy day. And spend a lot less. Thus generating an enormous economic rainy day. Yikes!
Tanta,
Until 6 months ago I didn't know the financial definition of doubling down.
I saw people say they "doubled down" and literally thought they were sitting at a blackjack table.
The jokes write themselves...
Are most HELOC non-recourse? If not, can't they go after other assets to cover the loan?
Don't get me started on the hypocrisy of the "entitlement" argument here.
I have a house that I can afford on my income.
However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.
In other words, they feel entitled to own something they can't afford to buy.
I'd like to drive my Bristol Blenheim, have a nice house on Bainbridge Island with a view of the Sound, and go back to school to study ancient history just for the joy of learning. Ain't gonna happen, of course, but I sure as Hell don't feel entitled to all that, or "robbed" by anybody because I can't afford those things.
Sebastia
When I took out my HELOC, the bank said it was all about "freedom." Freedom to pay my bills, my way. Freedom to consolidate all my other expenses into one easy, tax-deductible payment.
Clearly, the banks now hate freedom and should be considered terrorists.
Sniglet So just how is the HELOC lender better off by having the home go into foreclosure rather than accepting a short sale? The 2nd mortgage lenderr will lose everything in either case.
Yes, which is why the second has no incentive to agree to a short sale unless the first is willing to toss some $$ the second's way. By agreeing to such a short sale they take all the hit and the other parties get all the benefit.
Think about this for a moment. The first lienholder has no incentive to worry about the second lienholder's interests when assessing a short sale. All the first cares about is getting itself covered, and it will agree to any short sale that will do that.
People who are looking to buy short sales have no incentive to offer more than the lender will accept. This is a process of negotiation, and it is nearly insane to reprove the second lienholder for wanting to be a party to the negotiation.
Most seconds are recourse. The first lienholder definitely cuts its losses on a short sale. If the best price is the short sale, then the first lienholder does have something to gain on the short sale, because it will definitely lose money if it forecloses. Therefore it could throw some money the second lienholder's way.
The second lienholder is asking the first lienholder to really investigate the offer. If it is the best, then the second wants a piece of the action. If it isn't, why should the second agree to be unnecessarily wiped out?
The other possibility is that the homeowner will sign a note for the 10,000 or so.
I don't know where this idea that a second lienholder has no economic rights in such transactions came from. If second lienholders always agreed to short sales that only paid the first lienholder, every realtor out there would be telling prospective buyers to just cover the first with their offer.
Are most HELOC non-recourse? If not, can't they go after other assets to cover the loan?
Well, most HELOCs are "recourse." But in the current context we are talking about borrowers who open the HELOC when they have "other assets," and then not borrowing against it until they have gone through all their other assets.
So it doesn't do much for a lender to sit around waiting for the borrower to draw down in a "catastrophe."
And since you can't predict who will do that, you just start cutting off lines that have been sitting there unused since origination.
However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.
You are making incorrect assumptions about housing bears. I am one, and I resent your innuendo that I am somehow jealous of your wonderful life. I'm not. I'm just not fond of purchasing overpriced assets. I am also in Los Angeles, quite a different market from yours, so I look at the world a bit differently.
FYI, I could probably purchase a house on your street for cash. And put old refrigerators on the lawns, and cars up on blocks. And dogs. . . lot's of dogs. Howdy neighbor!
it strikes me that this would result in an awful lot of negotiation (i.e., expenditure of paid human time) between lenders who might be in exactly the reverse positions on other loans.
I would suggest we bear in mind that the only thing the press is interested in reporting on are the ones that fall through.
I'm quite sure there are plenty of short sales out there where the first and the second worked something reasonable out, at least in part because they know it'll be them next.
But you don't get headlines in the Times that read: "Rational Lenders Negotiate Reasonably For Once."
Have you considered offering that headline to the Onion?
Once again this is a classic case of banks mispricing risks.
HELOC's at prime or prime plus a quarter do not take into account that they are in a subordinated position.
How any of these institutions think that the rate on a junior lien should be less than the senior mortgage rate is unfathomable. Not only is the rate insufficient they now are recognizing the collateral is insufficient as well.
they should make "Pro Financial Wrestling" or "The Debt Octagon" would be a hit and may they earn enough to keep solvent.....
You can get out of those heloc's by filing for bankruptcy and including the house, even if the heloc was taken out way after the 1st mortgage, the heloc lender cannot come after you if you file for bankruptcy.
Sebastian wrote: "I'd like to drive my Bristol Blenheim..."
Bristol Blenheim? God, that was an awful airplane, it seems a very odd ambition to hold if only funds were unlimited.
Victoria M. writes:
You can get out of those heloc's by filing for bankruptcy and including the house, even if the heloc was taken out way after the 1st mortgage, the heloc lender cannot come after you if you file for bankruptcy.
some on "The Daily Show" said months ago this is the new kind of class warfare, soak yourself up with debt then go Bankrupt.. i see a HELOC run coming soon and to be fair may your only chance to get some back before the FED ruins the country complette..
(btw can they seize food in a bankruptcy? like tons of canned food???))
Sorry Sebastian, this is really pathetic
"However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income."
Ignoring the insipid snobbery, you seem to misunderstand the relationship between median house price and median income level, for which data goes back about 600 years.
Maybe the Wright Model B has something to say about it though, hadn't thought of that.
just not fond of purchasing overpriced assets.
I cry foul here. I've stated, more than once, that there are plenty of affordable houses available everywhere and even in and around LA. What you are saying is that you'd like these to be in places where you PERSONALLY want to live. That is the hypocracy that Sebastian is complaining about.
You said "overpriced asset" but that is in YOUR opinion. The market will tell you what is overpriced or not. If someone can afford it and pays it, then it isn't overpriced. If you think the houses in Newport Beach are overpriced, I might suggest that they always will be realtive to what some people make.
Your post smacks of as much entitlement, JBR as the original. YOU want to say what's overpriced. And also, frankly, if you tried what you suggest in my neighborhood, we have statues that protect us from such behavior, so you'd be fined. Part of living in an area of 1M+ houses is the rationale that others can afford the price of admission. It's not always about square footage.
Today's lesson? HELOC? Further evidence of lenders tightening? Or the pivotal role of short sales in the nationalization of the mortgage industry? (hint, choose the latter)
IMHO, the MSM continues to mistakenly characterize foreclosure as the nations 800 lb housing gorilla, when in fact, it's actually "short sales".
As reported yesterday, housing prices continue to freefall with no bottom in sight. In that environment, short sale "costs" increase as home prices decrease (i.e. cost = difference between mortgage face value and home resale price). In short order, short sale cost quickly exceeds those associated with foreclosure.
Although often portrayed as the lenders most unsavory option, foreclosure results in the possession of a tangible asset (i.e. home); whereas, short sales result in lender write offs that grow larger as home prices plummet.
IMHO, short sales, not foreclosures, will be the primary driver behind the nationalization of the mortgage industry. TA
JBR said: "...I'm just not fond of purchasing overpriced assets..."
By what standard? Housing price in relationship to your income, right?
A lot more people can afford a Civic or a Corolla than a Lexus. So why is a Lexus so much more expensive, why doesn't the price drop down to the price that most people can afford, even during a recession?
Ans. Because the price of a Lexus isn't dependent on the support of people with median incomes, but of the people who can afford a Lexus.
Cities like L.A, San Francisco, NYC, etc., have always had expensive housing, driven by whatever-it-is that attracts people to those cities. Those factors (employment oportunities, access to cultural events, climate, etc.) support housing prices there.
If you're living in L.A., make a good income, can't afford a decent house in a decent neighborhood, but choose to live there *anyway, that factor helps support expensive housing there.
Multiply that effect by the actions of hundreds of thousands (millions) of other people who live there.
If you really want housing prices in L.A. to drop, move. Vote with your feet, get a few hundred thousand people to go with you, and go somewhere that your income can get you a decent house. That will reduce the demand for housing in L.A.
If housing where you live is too expensive, I sympathize. Maybe it's priced wrong, but maybe it's not.
Sebastia
It's good to see someone reading newspaper stories with a few tons of salt. Fact is that the ordinary course of bizniz isn't going to sell dead trees. Journalists need a narrative, and "Let's you and him fight" is the model.
Correction: Lenders' short sale "cost" = difference between mortgage principal balance (not "mortgage face value") and home resale price. TA
Sebastian, I thought you promised me the other day you were going to stop hijacking threads because you personally feel that you have been victimized by other commenters' "hypocrisy."
Remember, your new MO is a grownup who really doesn't care what idiots think.
Dr. Deflation said: "Ignoring the insipid snobbery, you seem to misunderstand the relationship between median house price and median income level, for which data goes back about 600 years."
It's not insipid snobbery at all. If I were to move to L.A. with my current income, I'd be priced-out of the housing market just like so many others who live there.
I'm just trying to view conditions from an objective point of view. Are housing prices "too high" or are they just too high for my income?
The answer, it turns out, depends on where you live and not the level of prices.
Sebastia
Tanta said: "Sebastian, I thought you promised me the other day you were going to stop hijacking threads because you personally feel that you have been victimized by other commenters' "hypocrisy."..."
Yours, too, but point taken.
S.
why people think they are entitled to "home equity line of credit"? why they think they are entitled to have lender give them money? shouldn't lender be the one decide if they will lend?
Sebastian
If in general House prices are too high for the vast Majority then your argument runs against a wall..
ever tried with emphaty???
And since you can't predict who will do that, you just start cutting off lines that have been sitting there unused since origination.
Is it helpful to use your HELOC occasionally to avoid a line cut?
Trollin' trollin' trollin'
Keep the counters rolli
However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.
Whoa. That's some seriously distorted thinking there, pal.
Just to put your mind at ease: I don't care how much you make or how much your house costs. I just have this theory that when there are more overpriced houses than there are overpaid punters, real estate prices are likely to go down. It's nothing personal. Honest.
I thought that second story sounded familiar. That's Nina who took a bath on a real estate flip in Palm Springs 2005-2006.
Sitting Pretty: Palm Springs
Click on the links there to the disaster in progress.
[i]However, the housing bears argue that since they don't have my income the price of my house has to come down to a point where they can afford it on their income.[/i]
Ultimately there's no way around the mean value theorem of Calculus... the median house price in any given area has to be a function of the median income in that area. This isn't a social or moral argument. It's raw mathematics.
AlanY
you could by cheap housing in Indonesia
while you have a job in San Francicso:-)) its along this lines i think..
Is it helpful to use your HELOC occasionally to avoid a line cut?
It is amazing how you can get a lender to treat you when you actually, you know, pay a little interest.
I am not saying that using your line will keep it from getting cut off. But for heaven's sake, letting it be all potential downside and no current profitability to the lender is not positioning yourself for making the cut.
the median house price in any given area has to be a function of the median income in that area. This isn't a social or moral argument. It's raw mathematics.
AlanY
This just isn't true. The median salary person doesn't need to be matched up with the median house. The housing market can roll along quite nicely at huge multiples with the right conditions. Not only that but there are not classic gaussian distributions in both income and home prices. Here in Ventura County the median household income is ~$60k but that's not the people who are buying houses. There's 10s of thousands who earn farm wages or clerk wages who aren't buying at all. They depress the median household income and make it look like houses are unaffordable.
Is it helpful to use your HELOC occasionally to avoid a line cut?
Well, I'll give you an example that backs up Tanta. I have several credit cards and I rarely use them. Recently one of them cancelled my card (specifically because I never use it) and two others lowered the credit limits.
Now, I'm a pretty darn good risk on paper by anyone's estimation. I take it as a sign of trying to control possibile outcomes. I think that banks are just culling the outstanding lines to avoid having people use them in the downturn and to reduce any possible exposure. It would be interesting to note that the cancellation for non-use was on a card from WaMu. I'm sure they really wanted me to call, but I won't. I don't need the card...I mean really, I have one card with a 24k limit. Does anyone really need a line that big?
"We must all hang together, or, most assuredly, we shall all hang separately." - Ben the Smarter
Facing the alternatives, BK or walkaway, wouldn't it behoove the lenders to agree to writeoffs proportional to their positions? Share the losses?
Ten or twelve years ago I was having a bad day, and experiencing a brain fart, I mistakenly thought that if I accepted a credit card offer from a given company that they would stop calling me to offer a card. So I accepted it. Every once in a while they send me an updated card, sometimes raising my limit, and direct me to call to activate the card. I ignore them, and the process repeats. Can I hope that sometime soon that they will cancel the account and stop calling me to take their card, which is all I ever wanted of them?
Rob, that's not true. Huge multiples over median income are unsustainable in the long run. High multiples indicate that the total money supply available to pay for housing is less than the sum of prices being asked by sellers. Hence, house prices must fall. This is, again, a corollary of the mean value theorem of Calculus. (Unlike "theories" in economics, theorems in mathematics are true regardless of whether people want to believe them or not.)
This may not be intuitively obvious to people because we're used to thinking in discrete units (single home prices), but it's nevertheless true.
Rob, that's not true. ... a corollary of the mean value theorem of Calculus ...
What does the mean value theorem have to do with this?
In theory, R.D. is right, as long as there are more people with incomes than there are people buying houses. Suppose you've got three people: two making $100/yr and one making $1,000,000/yr. Their median income is $100/yr. If the "member of the productive class" lives in an easily affordable $1.5m estate and the two serfs live under a bridge somewhere, then the median house value is $1.5m, or 15000x the median income. In fact, it doesn't matter how many serfs there are or how little they're paid. As long as the size of the productive class doesn't change (i.e., when Dawg decides to sell and retire to Costa Rica, someone else who can afford to buy his house decides to move into the area), this is theoretically sustainable. I don't think these circumstances actual hold anywhere -- housing values really are unsustainable in a lot of areas -- but I don't see how calculus tells us that they can't hold.
Is no one else bemused by the insinuation that a lower HELOC is somehow affecting the house? I suppose that in some tenuous manner you could defend this but it points to the sense of taking the blanket reduction as a personal assault.
AlanY writes:
Rob, that's not true. Huge multiples over median income are unsustainable in the long run.
I just finished explaining why it is entirely possible. Replying with "is not!" is not a productive discussion. Ventura County has a 67% homeownership rate and a $60k median income. That shouldn't be possible according to you. I live in a million dollar house but TCO is far less than $2000/mo. I sure couldn't afford it at $10,000/mo but my house is part of the huge multiple that has persisted for a very long time. It doesn't hurt that we have very low property taxes and very low heating costs, no cooling costs and very low mantainence expenses.
High multiples indicate that the total money supply available to pay for housing is less than the sum of prices being asked by sellers.
That's not true. you don't need to sell to the average person just one person. you've mistaken some kind of one-to-one corespondence of household incomes and home prices. They don't map that way.
Hence, house prices must fall. This is, again, a corollary of the mean value theorem of Calculus. (Unlike "theories" in economics, theorems in mathematics are true regardless of whether people want to believe them or not.)
You've tried to integrate over a discontinuity. Sure prices are going to fall but nowhere near 2.5-3x median income. That would be $150k-$180k. Currently the median is $500k down from a peak of $620k.
This may not be intuitively obvious to people because we're used to thinking in discrete units (single home prices), but it's nevertheless true.
It's a good thing this isn't intuitively obvious because it is wrong.
Necessary repairs, to keep the value of the house. If some damages are left unrepaired, they get worse.
Your post smacks of as much entitlement, JBR as the original. YOU want to say what's overpriced.
No, not really. I base my "overpriced" belief on the fact that, in areas I'm interested in, nothing is selling. Prices in much of the city of LA were driven up by EZ money and speculation. Now that that's gone, prices will adjust. It's happening, but it'll take a while. I'm in no hurry.
Also, I was responding more to the tone of Seb's post. I have no sense of entitlement, nor am I too poor to buy a house. Prices are falling, I'm waiting. Oh, and I'd pay the fine. I'd categorize it as an entertainment expense.
SDrenter,
Yes, and far more polite than my answer. Thanks.
As to: (i.e., when Dawg decides to sell and retire to Costa Rica,..)
My brother beat me to it (Nicaragua). Me, I'm going to buy 1200 acres in the Berkshires and a D5H from Mr. Dryfly and build a 4 season membership resort with airstrip. All my members won't be from the lower quintiles either.
The $64 dollar question is, what sort of expense qualifies as a 'good' use of a HELOC?
My HELOC went to:
Obviously I think those are appropriate uses.
By what standard? Housing price in relationship to your income, right?
Uh. . . no. Based on price in relationship to the incomes of people in the areas I'm interested in. As I said in the reply above, virtually nothing is selling. My problem is this:
In other words, they feel entitled to own something they can't afford to buy.
That's a ridiculous, elitist generalization.
"the price of my house has to come down to a point where they can afford it on their income."
OR, as in NYC, we adopt another strategy. We make skimpy little units that people can afford out of the bigger units that people cannot afford. It's called apartments. Of course, these too have been known to inflate in value eventually.
FYI, I could probably purchase a house on your street for cash. And put old refrigerators on the lawns, and cars up on blocks. And dogs. . . lot's of dogs. Howdy neighbor!
Hey JBR, those dogs wouldn't bark would they?
OMG, Rob! That Nina!!
Boy, when your bailouts fail they really fail, don't they? While she's not financially irresponsible, she has a heck of a risk profile right now with so much in real estate.
Naive question perhaps. I would think there would be a stronger distinction between seconds that were piggy backs initiated on a purchase and seconds that were entered into later. Are they similar enough to talk about them interchangeably?
llano llama, the issue for today's post isn't when the HELOC was originated, it's when (or if) money is actually drawn out.
In any piggyback used to purchase the home, by definition a balance was created (the money was borrowed to pay the seller for the house). It might have been a HELOC that had a larger limit than necessary for the purchase transaction. Say, you needed $50K for the purchase and you got a $100K line of credit. That means you started out with a $50K balance and may or may not have drawn down the remaining $50K limit at some point after the original purchase closing.
Rob Dawg writes:
"There's 10s of thousands who earn farm wages or clerk wages who aren't buying at all. They depress the median household income and make it look like houses are unaffordable."
In all fairness, the farm workers are probably undocumented, so their incomes aren't really counted, thereby artificially inflating the median income for the area.
From a previous comment:
"Where in the hell is 6.375 money coming from on a fixed 2nd, 10-20% ltv w/ a three year prepay?"
Do the home owners taking out the second have significant equity in their home - i.e. have they paid off enough mortgage to actually own a piece of their home even at current house prices (minus an additional drop forecast)? If they are not "underwater" then lending to them might still make sense.
Of course, people who actually take these HELOCs are gambling a house that they have invested heavily in and/or have lived in for a long time. Banks cannot have that now - need their revenue.
In all fairness, the farm workers are probably undocumented, so their incomes aren't really counted, thereby artificially inflating the median income for the area. - transient
They are most certainly counted any number of ways. The Census gets a most of them, the State near all of them and they are included. Just look at the Census data for income distribution.
http://factfinder.census.gov/servlet/STTable?bm=y&-geo_id=05000US06111&-qr_name=ACS_2006_EST_G00_S1901&-ds_name=ACS_2006_EST_G00
notice Median $72,107 and Mean $91,371. For a universe of 259,093 that's a huge gap.
The problem with a second position lien is that the "security" is a second class security. In the event of default on the first, the second has to pay off the first to get it's security, if any, back.
Rob,
You could look at the median income amongst the top X% where X is the percentage of households that own an home. Have to assume that the top income earners are the home owners though.
I don't think you are arguing that median income has no relationship to house prices in the long term - it is more an argument over the magnitude of the multiplier. Am I right?
I don't think you are arguing that median income has no relationship to house prices in the long term - it is more an argument over the magnitude of the multiplier. Am I right? - foo
Things got a little technical. Yes, that is what it looks like in practice, the multiplier in some cases appears high. The reason for that is where the technical stuff comes in. In our example a large group of lower income workers are included in the median income but are not really candidates for homeownership. There are even more distorting factors. The last few years of new housing was mostly high end pushing the median way up while making little price impact on the body of stable existing housing.
I take it that you mean the mean was pushed up.
And no, phrasing like "mean the mean" wouldn't cut it in my professional writing.
No, the "mean of all housing" and the "median of sales prices" were both pushed up. The existing houses could have stayed the same price but these new McMansions by themselves could have pushed both metrics. as it was existing houses got pulled up as well. In 1961 my house was considered high end executive at 2600sf. By 2005 that was on the small end of new houses being built.
Let's side with the banks that created the HELOC product. First the big sales push to borrow...then withdraw the credit. Some of these HELOCs were borrowed for home improvement. Then the rug gets pulled. It's the extremes of easy lending to pull the credit plug that is creating chaos. The banks need intense regulation apparently not deregulation! The banks(incl. the Fed) create the insolvency cycles!
So enough new stock was built above median to shift the median cutoff line significantly. What is your baseline year? What percentage of houses that exist today are new stock since that year?
If your baseline year is recent then that is pretty amazing.
HELOC's at prime or prime plus a quarter do not take into account that they are in a subordinated position.
Just so no one gets too excited about Prime bear in mind that it is no longer the rate that banks charge their least riskiest customers and hasn't been for 20 years. Prime is a rate that has historically had a fair bit of risk premuim built in. The Prime to Libor Basis has been banded between 250 and 300 bps per year. That means if you were to swap prime to libor you'd get Libor + 250-300 depending. Now if you take Libor and had swapped it to fixed depending on when you did it you'd get 4.16 today for 10 year or 4.72 for 30 year. That means something at Prime and 1/4 would be the equivalent of roughly 7.16 on a fixed rate basis for 10 years. This of course ignores all the optionality etc. in the HELOC (which is the problem in my opinion) but from a credit perspective it's not really that poorly priced.
The mistake being made isconflating average house price with aberage home price. In sdrenter's example, the median house price was $1.5MM, but the median home price was 0.
The theory that median income and median home price are related holds, over the long term, I think. But homes have to include apartments, and even tents if it comes to that.
Spoilers include commuters, but even there, if things get too crazy, things get crazy. I understand that tradespeople are REALLY expensive in the Hamptons, because you're paying for an hour each way of gas and travel time. Martha's Vineyard is even worse. [Not directly related to median/median theorem, just an example of consequences of remote communities with extreme barriers to entry.
Well, nice to see my Zillowed Away (c) meme is going great guns. I predicted this waaaay back in November. Now, if I was a really smart hedge fund, I would be buying this stuff at 25 cents on the dollar, and seeing if the folks who borrowed it are willing to pay 50 cents to clear it;-}
I agree with Rob Dawg, home improvements are a good thing. Or as I call it, the we need a new roof fund. Ours is currently residing in my wife's brokerage account in a cd. kinda boring, but if we need that money, it had better be available.
Not subject to Ohmygawd we have to cut potential liabilities cause we have too much CDO exposure and the Bank crapital folks might tell us to raise another ginormous amount of capital to cover all of our immense risk to NINA loans.
Just sayin', bird in hand worth many banker promises.
Someday this war's gonna end...
foo writes:
So enough new stock was built above median to shift the median cutoff line significantly. What is your baseline year? What percentage of houses that exist today are new stock since that year?
If your baseline year is recent then that is pretty amazing.
We've been building about 5000 DU per year. 2% per year roughly. I cannot recall any selling for less than 10% below the median at the time. 5000 per year was about 35-40% of all sales. quite a bias on the imputed value of the entire housing stock and the sales price median.
We're supposed to feel sorry for the banks when they didn't even check incomes?
OK, I take it back, after a few thought experiments. Medians mean nothing. Total spent on housing and total income are related, precious little else.
Ipodius, I have never been a debt-inclined person. But you're making me want to carry a balance on my cards to keep them from being taken away - just in case there's an emergency. I had a balance transfer rate a few years back 1.9% fixed forever, but paid it off because it bugs me to have a debt hanging over my head. But in today's society, if you don't borrow, you're not a first class citizen. So maybe I SHOULD open one of those HELOCs just to keep the ol' options open.
Whodathunk on this bear blog I'd be persuaded to consider taking on debt?
Total spent on housing and total income are related, precious little else.
Actually if you could find data that had this broken down by zip code, you'd probably be able to really see what is happening. But, of course, for those whose income was stated...maybe not so much
But I do believe that ratio is the holy grail.
OK, I take it back, after a few thought experiments. Medians mean nothing. Total spent on housing and total income are related, precious little else. - Ralph Cramdown
Medians can tell you a lot just remember they are a statistics and carry all the associated warnings therein.
So many things go into housing prices that it should be a degree program. If California were to break covenant and suddenly eliminate Prop 13, for instance, my taxes would likely triple forcing me to sell at the same time oh, 5 million other people would be forced to do the same. As it is with Prop 13 houses sell at a premium because of the certainty of taxes going forward. The same for tight planning restrictions. The reasonable assurance that house next door won't be replaced with high density "affordable" housing carries a premium as well.
Even total income is subject to much adjustment. In high tax States the HMID is more valuable and the income to house price comparison is not linear. Very low income people cannot afford a house no matter how reasonably cheap while very high income people can afford to spend far more than the usual 28% DTI would indicate as they have more disposable/discretionary income.
But you're making me want to carry a balance on my cards to keep them from being taken away - just in case there's an emergency
Oh no! I just thought it was funny (funny as in strange) that this happened. I was just tossing it out there as a data point about how banks are probably just being proactive in the face of a downturn. Also it as WaMu, so I took that as a sign about how things are going internally.
True dat Rob Dawg, but to do some analysis about home prices, bottoms, etc I think the income/% on housing ratio is very close to the ground about many things...even likely rent. As I said, I'd like to see that by zip code.
For what you are saying, look no further than some tony little vacation enclaves. Most people there don't really need to see, and no one really needs to buy, so the dynamic is different. Of course now, we find out who really does, and just was saying they don't
iPodius Rex,
i sold my last tony little vacation enclave income property April 2006. I know exactly what you are talking about but this time is different. It is worse. a lot of people in 92397 were "swimming naked" with negative cash flows or down payments from primary home equity withdrawal and the like. Indeed the last house I sold is back on the market for less than I got. BTW, I sold to my own realitter.
Gee Rob Dawg, you seem like a hypocrite to me. Sell your property at the peak of the market and then criticize lenders, "realitters" and others for their behavior.
You fit the profile of a guy who sold all his r/e and expected prices to drop to 1978 levels in 3 months. Meanwhile you move into a trailer or maybe your mother-in-law's garage. Then you realize that all that paper money you are sitting on is rapidly declining in value. Which is falling faster, the US dollar or the value of real estate?
Should have read up on real estate cycles before you sold your house. Real estate is notoriously slow on downside corrections due to a) the inability to take short positions on real estate b) the tenacity to which people cling to mortgaged property c) the slow process of foreclosure d) unrealistic seller and buyer expectations. "Denial" is not just a river in Egypt. Read "Progress and Poverty" by Henry George. He didn't have all the answers but made some very astute observations that ring true to this day.
When you can't take the trailer or mother-in-laws garage anymore, you'll pay double for a house half the size of the one you used to live in.
Should have stayed put.
If anyone remembers when these things first became popular, one of the big selling points was the deductibility of the interest payments.
Any debt that makes sense makes more sense on a home equity line.
Zarley writes:
Gee Rob Dawg, you seem like a hypocrite to me. Sell your property at the peak of the market and then criticize lenders, "realitters" and others for their behavior.
Well gee Zarley, you seem terribly uniformed and nasty and a poor reader to boot. I didn't want to sell. this last was paid off and fully depreciated earning good coin. The market got crazy and I had too much at stake to leave in such a concentrated sector.
You fit the profile of a guy who sold all his r/e and expected prices to drop to 1978 levels in 3 months.
No, I sold all my non-personal use real estate.
Meanwhile you move into a trailer or maybe your mother-in-law's garage.
Here's where I live: http://bp3.blogger.com/_zqzPMzXNGso/R-wJOdGU5WI/AAAAAAAABiI/tknvxkuNJaQ/s1600-h/Picture+1.png
The house next door is for sale $2.4m. Across the street $5m and two to the left $2.3m. The trailer life been very very good to me.
Should have read up on real estate cycles before you sold your house. Real estate is notoriously slow on downside corrections due to a) the inability to take short positions on real estate b) the tenacity to which people cling to mortgaged property c) the slow process of foreclosure d) unrealistic seller and buyer expectations.
You've correctly described how things used to work. You know from the time when the NAR was saying that housing prices NEVER went down. Stickiness still a working theory after the Dec-Jan and Jan-Feb numbers?
"Denial" is not just a river in Egypt. Read "Progress and Poverty" by Henry George. He didn't have all the answers but made some very astute observations that ring true to this day.
Oh, great, a Georgist. and one who assumes others aren't as educated as they. A winning combination. Not.
almost two years ago to the day i had an analysis of property taxation with respect to Georgist views: Exurban Nation: Son of George
When you can't take the trailer or mother-in-laws garage anymore, you'll pay double for a house half the size of the one you used to live in.
Should have stayed put.
Idjit.
http://email.citimortgage.com/mhe/08/products/default.htm?
Citi is still advertising these on Google. So unless they are paying to advertise products they don't sell, I expect that it is really based on their view of the California real estate market.
Businesses, especially smaller ones, have loans called in credit crunches.
Looks like Nina will be learning a lot more about credit and leverage in the near future.
iPodius Rex
LOL...if I gain any more weight this winter, I'll have those little Rex arms that don't go over my belly
You are on the money. Here in 02657, we're now seeing who is nekkid because the tide has done long gone out. There is over 2 years of inventory on the market right now. Over 2 YEARS. I think everyone thought it was the Hamptons for a while. But, you know, they can hush up the carnage with short sales a bit. Very few FCs, but when there is one, the price is making people's eyes water. We'll be finding out who was levered up this year.
Here in 02657, we're now seeing who is nekkid because the tide has done long gone out.
P'town? You can just walk down Commercial Street iffen you want to see nekkid peuples. One of my aunts owns that little house right at the entrance to the Pilgrim Memorial. I used to "summah theah." Nothing like the first Friday night after Labor Day. Wicked pissah.
Nostalgia aside, you are so right. P'town and the Falmouths and Chatham are nothing but leveraged investments waiting for a margin call.
Anybody know about reserve requirements for an open HELOC line? There is a rumor I read a while back that suggests closing HELOCs is more about the reserves than declining values (which, if this is the case, is a good excuse to close or lower a line).
Rob Dawg, what is the difference between the nighttime rate and the peak daytime rate at which you can sell back your solar power. They closed down rate schedule up here a year or so ago that was around 1:3. It is now around 1:2 with a less generous "peak rate window"; definitely regret missing it. I am fairly low on my energy usage so I don't hit the higher marginal rates much and its harder to cost justify a solar installation.
Rob Dawg, what is the difference between the nighttime rate and the peak daytime rate at which you can sell back your solar power. They closed down rate schedule up here a year or so ago that was around 1:3. It is now around 1:2 with a less generous "peak rate window"; definitely regret missing it. I am fairly low on my energy usage so I don't hit the higher marginal rates much and its harder to cost justify a solar installation.
Technically SCE is supposed to buy back at retail aka run the meter backwards but they make that near impossible with any number of obstacles. Near as I can tell in practice it is repurchased at Tier 1 residential currently $0.09490 I think.
I agree with the first post, Citi should have used Zaio.
Orphans Rule!
National City wouldn't allow my subordination when I tried to refinance lately. It makes some sense that they want to be paid in full to get out of as many HELOCs as possible. But the downside is adverse selection.
The market for second leins is almost dead but when I refied a month back rates on 30-year first leins had fallen to 5.25%. The only way I could get a second was through a credit union for a 15-year term and I didn't have the cash to totally pay it off and stay under the 417k conforming limit on the first lein.
The issue is that National City is going to lose all of their HELOCs and Seconds from their most credity worthy borrowers that are able to get a second lein in today's market. Eventually the average credit profile of their portfolio will decline.
Refinancing the first trust at a lower rate or a fixed rate will make a borrower more likely to be able to pay the second trust and would reduce Nat City's credit risk.
Blanket prohibitions on subordination are a bad idea and will spell trouble for banks. Subordinations should be considered on a case by case basis.
Gee Rob Dawg,
You obviously have not read Henry George's theory on real estate and business cycles... Real estate does go down. Slowly, very slowly. A slow death, like cancer or a slow blood loss. NAR would not subscribe to George's theory publicly. Secretly perhaps but not publicly.
So you are looking at the last three months of data??? My point exactly. You expect price corrections to occur in 3 months??? They begin to pick up speed as the bust deepens, that is true.
Why don't you just read the book? If you define a"George-ist" as someone who thinks that real estate booms and speculation have an effect on business cycles, then I'm a "George-ist". He had other beliefs which I do not subscribe to.
Read. Read. Read. I would say I am more educated than you. Yes.
How shall we prove it? Make a prediction and stick to your guns.
You have just notified the world that you are a hypocrite and have made millions off of real estate. You are part of the problem, not the solution.
I do not live in a 2 million dollar house. I rent a condo and live a fairly modest lifestyle that includes a lot of reading..
Shall we duel w/ our intellects? I welcome the opportunity. Hypocrite.
Rob Dawg,
Your very tiny bit of George's controversial belief on how property should be taxed is infantile. You are a child.
I do not share the same belief as Henry George in regard to taxation. Give me a break. You are uneducated.
READ THE BOOK. Are you afraid that you have been in the dark and afraid of the truth?
I do not live in a 2 million dollar house. I rent a condo and live a fairly modest lifestyle that includes a lot of reading..
Shall we duel w/ our intellects? I welcome the opportunity. Hypocrite.
Zarley
I'd say for some you just conceded the point but no matter. Ye are shunned by me on CR henceforth. Leave a dropping on my blog if you want toss around fighting words and insults but forewarned it's a tough crowd.
Should financial education be made mandatory in schools like math and science considering the important role finance plays in people's lives? For people like Newport Beach Nina, they need to be locked up and given a healthy dose of financial education until they live and breath the proper and right concepts. Harsh comments, yes. But I can't believe that this is the nonsense that is floating around on the Internet. Should the web/net be regulated like the TV and Radio? Me thinks so.
Gee Rob Dawg,
Guess I win. So what if I'm an a*#hole about how I get my point across. Truth hurts and I'm not one to mince words.
I'm still right and you still haven't read the book.
Chicken!!! I'm still gonna debunk you when I think you are wrong.
If your HELOC or home equity line of credit was frozen, suspended or reduced by your mortgage lender or bank, you can share your home equity line of credit or HELOC complaints with other HELOC borrowers whose HELOCs were frozen:
HELOC & Home Equity Line Of Credit Complaints | HELOC Complaints
You could also try contacting class action attorneys investigating HELOC freezes:
Frozen Home Equity Lines Of Credit and HELOC Loans | ClassActionConnect.com